China has come to enjoy a remarkable economic growth rate that has averaged nearly 10 percent per annum since the country began to pursue its open-door policy and market-oriented reforms in 1978. As a result, China has transformed from a centrally planned economy into a market economy and effectively strengthened its economic power and raised its people's standard of living.

No country in history has burst onto the world's economic stage as dramatically as China. With its accession to the World Trade Organization in 2001, China has not only become the world's third largest trading nation, following the United States and Japan, but also the world's top destination for foreign direct investment (FDI), and one of the world's major manufacturing bases. With China's rapid economic growth, electronics has now become one of the most important industries in the nation. China has become the world's largest maker of many electronic appliances, such as color TVs, DVDs, and cell phones. China also now has a leading-edge semiconductor industry. This is great for China, since the Asian-Pacific market is projected to grow significantly over the next decade.

The future of China is bright. China's preparation for the Beijing Olympics in 2008 and World Expo in 2010, as well as her successful manned space mission, continues to spur her economic growth and social development and enhance her overall national strength and position in the world. China's abundant well-trained technical labor, large market, and growing economy provide the ideal conditions.

China's Electronics Industry by Prof. Michael Pecht provides comprehensive information on the latest development of China's electronics industry and the factors that contributed to its success. We hope that this book gives the readers an opportunity to learn about China and her electronics industry.

Minister Counselor Jin Ju
Embassy of the People's Republic of China
2300 Connecticut Avenue, NW
Washington, DC 20008

China made contributions to the world down through the ages, but for a long time conditions have been at a standstill in China and development has been slow. Now it is time for us to learn from the advanced countries. China cannot develop by closing its door, sticking to the beaten track and being self-complacent. You ask us whether it runs counter to our past traditions to implement the policy of opening to the outside world. Our approach is to define new policies according to new circumstances, while retaining our best traditions.

- Deng Xiaoping, October 10, 1978

Since the open-door policy began in 1979, China has boasted one of the fastest growth economies in the world. Electronics has been a Chinese pillar of success and is now the largest industry in China with growth of nearly 20 percent annually, and there is no end in sight. China is now the world's number one producer of TVs, recorders, VCD players, telephones, calculators, refrigerators, and air conditioners. China also has the number one cellular phone market, is number one in IC consumption, has a leading-edge semiconductor industry, and is the largest PC producer. Entry into the World Trade Organization is leading to economic liberalization, simplification of the licensing and foreign investment policies, and targeted government funding in electronics R&D.

The Chinese central government is encouraging foreign investment and providing massive incentives in the so-called "pillar industries," which include the electronics industry, to serve as a multiplier for science, technology, and national economic development. As a result, companies are rapidly transferring science and technology into China. For example, Intel, which already operates three major electronic facilities in Shanghai, is further expanding into Chengdu with two new plants and more than 2,000 employees. Intel is also training engineers and has introduced new textbooks and added courses on semiconductor physics and factory processes to the undergraduate curriculum of the local universities.

This book documents the technologies, manufacturing, capabilities, and infrastructure that have made China a major player in the electronics industry. It covers semiconductors, electronic packages, printed circuit boards, connectors and contacts, computer hardware and software, telecommunications, and various electronic systems. Other topics include the role of government, research organizations, educational institutions, science and technology information networks, and major companies in establishing an infrastructure where the electronics industry can flourish. In its coverage of the important aspects of the Chinese electronics industry, this book:

• Demonstrates how various factors, such as political structures, government policy, science and technology development, education, and labor force, have contributed to the growth and performance of the industry;
• Reviews Chinese economy in the post-reform period, including general economic status, specialized economic zones, monetary and fiscal policies, foreign direct investment and trade, as well as Sino-U.S. economic relations;
• Presents the development of China's electronics industry, foreign trade and investment in the electronics industry, and national planning;
• Evaluates major segments of China's electronics industry, such as semiconductors, computer hardware and software, telecommunications, and electronics systems;
• Includes valuable site reports for key companies and other organizations;
• Provides statistical information and numerous tables and figures that illustrate the text.

A brief description of the organization of the book and the topics in the chapters follows.

General Information: Chapter 1 provides a brief overview of China's geography, population and major ethnic groups, language, religion, education system, and political structure, and a brief overview of her modern history.

Economic Conditions and Policy: Chapter 2 overviews China's economy in the post-reform period, and the methods used to promote international trade and to encourage foreign direct investment, especially in the electronics industry. Topics include the current economic status, China's foreign trade relations, and the development of special economic zones. China's monetary and banking systems, foreign exchange systems, and issues of public finance, such as taxes and import tariffs, are then discussed. Trade issues between the U.S. and China have also been discussed.

China's Science and Technology: Chapter 3 outlines China's science and technology infrastructure, current status and goals of national science and technology policy, and the national management of China's electronics industry.

Development of China's Electronics Industry: Chapter 4 presents China's Five-Year National Development Plans and the foreign trade and investment in the development of China's electronics industry. Major national electronics projects are then discussed.

Semiconductors: Chapter 5 discusses the status of technological development and evaluates the future growth of the semiconductor industry in China. The chapter presents the domestic industry as well as the cooperative relationships between the domestic manufacturers and foreign multinationals in designing, manufacturing, and testing semiconductor devices.

Electronic Manufacturing Service Industries: Chapter 6 provides a review of semiconductor packaging, circuit board manufacture, circuit card assembly, and system integration industries. It also briefly discusses the activities of foreign and domestic packaging businesses in China.

Connectors, Cable Assemblies, and Backplanes: Chapter 7 provides a brief overview of the interconnect industry in China. Data are presented on the leading market sectors, shipments by interconnect category, local production compared to imports and exports, leading interconnect manufacturers, leading contract manufacturers, and basic information on capabilities and manufacturing of interconnects in China.

Computers: Chapter 8 presents China's computer industry. Topics in this chapter include technology developments in hardware, competition among major domestic manufacturers and foreign competitors, government interaction and support, and China's supercomputers. Telecommunications Industry: Chapter 9 discusses the development of China's communications industry based on three major industrial segments: telecommunications, mobile communications, and data communications. Discussion topics include national telecommunications development, the use of the Internet and the growing electronic commerce in China, as well as the competition in technological network standards in China's mobile communications market. In addition, foreign joint ventures in China's communications market and the development goals for China's communications industry are also presented.

Other Electronics Industries: Chapter 10 overviews China's consumer, automotive, avionics, medical, military and space electronics industries. China's consumer electronics industries include TV, DVD, and cellular phone. The chapter also examines government policies related to this industry and discusses possibilities for future development, along with the opportunities and challenges facing China.

Software: Chapter 11 presents China's software industry and the Internet development. The development of software industry depends on the number and quality of software talents, research in software technology, domestic and foreign investment, and legal protection. The Internet is a catalyst of developments. In this chapter, we review the development and discuss the potentials of the software industry and the Internet in China.

Conducting Business in China: Chapter 12 discusses the question of why someone would want to conduct electronics manufacturing in China. To answer this question, the chapter examines the reasons for the strong growth in China's electronics industry and also identifies challenges.

This book is intended for corporate planners, business managers, policy managers, technologists, and engineers. They will find it useful in assisting them to comprehend the current status and future growth of China's electronics industry; understand the cultural, economic, and technological factors that drive and inhibit market access and success in China; and make decisions on strategic issues such as market entry, establishing joint ventures and strategic alliances with Chinese electronics companies in order to access the world's largest emerging market. Finally the book is intended to help companies formulate strategy to cooperate and compete in the global electronics industry.

Michael Pecht
George Dieter Chair Professor
University of Maryland
College Park, MD 20742

June 21, 2006

We are indebted to the companies, universities, and the professional colleagues who provided us with the time and support for writing this book. This book would not be what it is today without their help. We are extremely grateful to the State Science and Technology Commission of the People's Republic of China, and the Chinese Embassy in Washington D.C. for providing up-to-date information on Chinese economic growth, electronics technology development, and industry strategy and structure. Special thanks go to Prof. Y.C. Chan and the EPA Center for invaluable help in previous editions.

We extend our sincere appreciation to those who reviewed the draft of this book and offered many suggestions for improvement. These people include: Honorable Yang Jeichi ¨C Ambassador of the People's Republic of China to the United States, Honorable Xu Guanhua, Minister - Ministry of Science and Technology - People's Republic of China, Honorable Jin Xiaoming, Minister Counselor - Science and Technology Office, Embassy of the People's Republic of China in the United States, Prof. Stephen Y. L. Cheung of City University of Hong Kong, Mr. Daniel K. Lau of Ralong Business Technology Academy, Ms. Samia Islam and Ms. Angie Wong of City University of Hong Kong, Mr. Charles F. Larson of Industrial Research International and Prof. Robert Coogan from the University of Maryland. We also thank Parva Fattahi and the student assistants at the University of Maryland: Reagan Colaco, Nitya Chandrasekharan, Harshal Kuldivar, and Dhaval Mehta, for their help with formatting the book.

All chapters in this book are the result of collaborative efforts made over many years. Besides the editor, the following people helped on individual chapters.

• Chapter 1: Weifeng Liu, Hewlett-Packard Co.; Chee Cheung, Compass Technology Co., Ltd.; James Gao, University of Maryland; and Xiaolu Hu, San Jose State University
• Chapter 2: William Boulton, Auburn University's College of Business; Charles Lobo, Tata Consultancy Services; and Ken Davies, Organisation for Economic Co-operation and Development
• Chapter 3: Greg Felker, Hong Kong University of Science and Technology; Weifeng Liu, Hewlett-Packard Co.; Laurie Sullivan, Electronic Business News; Jingsong Xie, Beijing University of Aeronautics and Astronautics; and William Blanpied, George Mason University School of Law
• Chapter 4: Chung-Shing Lee, Pacific Lutheran University, School of Business; Weifeng Liu, Hewlett-Packard Co.; and Steve Yang, Intel Corporation
• Chapter 5: Weifeng Liu, Hewlett-Packard Co.; Zhenya Huang, Motorola; and Bin Zhu, University of Maryland
• Chapter 6: Ji Wu, CALCE, University of Maryland; Haiyu Qi, CALCE, University of Maryland; Bin Zhu, University of Maryland; Daniel Donahoe, Exponent, Inc.; and Ricky Lee, Hong Kong University of Science and Technology
• Chapter 7: Fleck Research, a Division of Global Connector Research Group, Inc.
• Chapter 8: Jingsong Xie, Beijing University of Aeronautics and Astronautics
• Chapter 9: Bin Zhu, University of Maryland; and Mustapha Ismail, American University of Beirut
• Chapter 10: Martin Rosman, CALCE, University of Maryland; M. Lee, LG Electronics; Ping Zhao, Medtronic; Frank Sun, Western Digital Corporation; Hui Xia, Agilent Laboratories; Wei Li, Logitech, Inc.; Robin Li, National Semiconductor Corporation; Irene Zou, Auburn University, College of Business; and Bin Zhu, University of Maryland
• Chapter 11: Karl R. H. P. Leung, Hong Kong Institute of Vocational Education
• Chapter 12: Simon Wong, The Refined Industry Co., Ltd; Hamed El-Abd, WKK Distribution Ltd, HK; Jingsong Xie, Beijing University of Aeronautics and Astronautics; Tao Jin, University of Maryland; and Hong Ye, Beijing Polytechnic University

Royalties generated from the sales of this book will be directed to support research at the Center for Advanced Life Cycle Engineering (CALCE), University of Maryland, College Park.