Chinese Startups Failed to Catch Up to Advanced Chip Makers
Foundries with ties to a little-known entrepreneur set out to match TSMC and Samsung, but never commercially produced an advanced semiconductor
China has spent billions of dollars in recent years trying to catch up to the world’s most advanced semiconductor makers. Two foundry projects, led in part by a little-known entrepreneur then in his 30s, help show why China has yet to succeed.
The projects, in the Chinese cities of Wuhan and Jinan, were supposed to churn out semiconductors nearly as complex as the more-sophisticated chips made by industry leaders Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co., which have decades of chip-building experience.
Chinese officials kicked in hundreds of millions of dollars to support the upstarts. But it quickly became clear the plans had been too ambitious, and local officials had underestimated how difficult — and costly — it is to make complex high-end chips.
The two foundries, Wuhan Hongxin Semiconductor Manufacturing Corp. (HSMC) and Quanxin Integrated Circuit Manufacturing (Jinan) Co. (QXIC), burned through cash, yet never commercially built any chips.
HSMC formally shut down in June 2021.
QXIC still exists but has suspended operations, and didn’t respond to requests for comment.
Over the past three years, at least six new major chip-building projects, including HSMC and QXIC, have failed in China, according to company statements, state media, local government documents and Tianyancha, a corporate registration database.
At least $2.3 billion went into those projects, much of it coming from governments, the documents showed. Some never produced a single chip.
The Wall Street Journal spoke with a man who identified himself as one of the organizers of the HSMC and QXIC projects.
Named Cao Shan in the Tianyancha database, he is listed as the previous chief executive of QXIC, a former board member of HSMC, and a former major shareholder in the firms.
The Journal also spoke to former employees of QXIC and other people familiar with the matter for this article.
Beijing leaders and investors are poking through the wreckage of struggling semiconductor businesses in hopes of salvaging some parts, while also writing tougher rules to prevent future waste.
While the government for years has unofficially requested that certain chip makers seek approval for new projects, now approval is required for projects involving more than roughly $150 million in fixed asset investment, people familiar with the matter said.
In December, Tsinghua Unigroup Co., a Chinese chip conglomerate that defaulted on billions of dollars of bonds over the past year, said a consortium led by two state-backed semiconductor venture-capital firms would become its strategic investor.
Making more semiconductors is a vital priority for China.
Chinese chip makers produce about 17% of the chips the country needs, according to International Business Strategies Inc., an industry consulting and analysis firm — leaving China reliant on foreign producers.
When it comes to building the most advanced chips, like ones used for smartphone and computer processors, China — which has been hit by U.S. sanctions restricting some companies from accessing certain chip-making technologies — could fall further behind, experts say.
Two entities involved in China’s semiconductor policies, the National Development and Reform Commission of China and the Ministry of Industry and Information Technology, didn’t respond to requests for comment.
Evidence of China’s societal frustration over its dependence on foreign chips flared up in late December, after U.S. semiconductor giant Intel Corp. sent a letter asking suppliers to avoid sourcing from the Xinjiang region, where China’s government has conducted a campaign of forcible assimilation against religious minorities.
Angry about the perceived slight, Chinese social-media users criticized Intel, with some lamenting China’s lack of sufficiently-advanced domestic chips to substitute for Intel’s.
Intel apologized and said its letter was written only to comply with U.S. law.
Beijing in around 2014 began unveiling industry-support plans that included a $22 billion central-government kitty for chip investments, known as the Big Fund. Local governments set up similar funds. In 2019, the state established a second national semiconductor fund of about $30 billion.
Soon, chip money was sloshing across China. Tens of thousands of Chinese companies registered their businesses as related to semiconductors, including some whose main activities involved restaurants and cement-making, according to the Tianyancha database.
China did improve at some aspects of chip making, including designing chips. But some companies went belly up because they didn’t have sufficient expertise or capital, industry experts say.
The Wuhan and Jinan projects were intended to start by making chips with circuitry measured at 14 nanometers or smaller — an area dominated by TSMC and Samsung — before moving on within a few years to 7 nanometers, according to company materials and government documents.
HSMC attracted a former top TSMC executive as chief executive. QXIC recruited dozens of experienced engineers from Taiwan, including from TSMC, with relatively big pay packages, according to former employees.
Soon, according to state media, it became clear that HSMC was far short of the funding needed to make advanced chips, which can cost billions of dollars to produce commercially.
At QXIC, work progressed slowly, former employees said. Although the engineers QXIC recruited had knowledge in technical aspects of chip making, QXIC lacked knowledge to integrate those skills, one of the people said.
In August 2020, Wuhan’s local government said the HSMC project was suspended due to financial difficulties, according to state media, and it was formally shut down in 2021.
After several other governmentsponsored chip projects also went under, Jinan’s government took over QXIC and began letting its employees go, according to people familiar with the matter.
An official at Jinan Innovation Zone, a Jinan government-run business district where QXIC is located, said the company’s operations have been suspended.
The Wall Street Journal located the man who identified himself as one of the organizers of the two projects through a phone number associated with one of QXIC’s main shareholders in the Tianyancha database.
The man said that while he had used the name Cao Shan in corporate documents, his real name was Bao Enbao.
He said he had played an important role in helping assemble technology and talent for the projects and used the pseudonym Cao Shan to avoid potential troubles when recruiting in Taiwan, which has been scrutinizing talent poaching from the mainland.
He said he had around 15 years of experience in the industry, after founding a chip-design firm in 2005, and made connections at TSMC after ordering chips to be made there.
When asked about domestic media reports that suggested his conduct wasn’t always aboveboard, he said: “Do you think local governments are that easily fooled?”
He said he left the Wuhan project in October 2018 after disagreeing with executives over how to develop it. He said that he left the Jinan project in December 2020 as Beijing increased scrutiny on chip projects, and that in May, Jinan’s government pushed the company he runs out as a main shareholder.
The Wuhan and Jinan governments didn’t respond to requests for comment.
As troubles emerged at projects like HSMC, Beijing recalibrated its approach.
In October 2020, the National Development and Reform Commission, China’s economic planner, said that companies without talent, experience and sufficient technology had blindly set up semiconductor projects, and that officials who supported such projects would be held responsible.
In the late 1980s, a US study at the School Sisters of Notre Dame (SSND) in Minnesota showed that many elderly people did not display symptoms of Alzheimer’s due to their lifestyle. Nuns at SSND were physically active and even those in wheelchairs still exercised. After going through journals written by nuns, the study found that those who used more complicated sentences in their writing had a lower risk of developing Alzheimer’s.
Since writing helps exercise brain cells, an online writing workshop was recently organised by Samong Sai Jai Sabai Club (Healthy Brain, Happy Mind Club) at the Dementia Day Center, King Chulalongkorn Memorial Hospital. With Thailand set to become an aged society this decade, the Healthy Brain, Happy Mind Club was established to raise awareness of dementia as well as help people understand its symptoms and aid in its prevention.
Assoc Prof Dr Sookjaroen Tangwongchai, the co-founder of Healthy Brain, Happy Mind Club, said that the writing workshop is just one of the various activities at the club.
“The workshop taught participants how to choose materials, create story structure, and how to write. Writing requires using several parts of the brain. The elderly have to manage and plan how to deliver stories. They also have to use language skills, including grammar and vocabulary as well as exercise their muscles while typing,” explained Dr Sookjaroen.
As chief of the Dementia Day Center at King Chulalongkorn Memorial Hospital, Dr Sookjaroen has seen many patients and understands that while the disease cannot be cured, it can be prevented and slowed. He and other co-founders established Healthy Brain, Happy Mind Club which provides four kinds of activities — seminars, workshops, podcasts and movie screenings — for members. The activities are available either online or onsite depending on Covid-19 regulations.
“At seminars, experts provide information and discuss the brain, mental health and lifestyles of the elderly. Workshops aim to promote mental and brain health. Besides writing workshops, participants can also learn how to create audiobooks, use social media, and applications. The podcast programme Samong Sai Jai Sabai is released once a week and is also available on Apple Podcast, Spotify and Castbox. However, the movie club is the most popular activity. Movies that are screened all have an issue for discussion. The elderly also learn how to interpret symbols in movies and enjoy social interaction with other people at the cinema,” explained Dr Sookjaroen.
In 2018, the Department of Mental Health reported that more than 800,000 in Thailand had dementia, with every eight out of 100 elderly being dementia patients. Alzheimer’s disease is the most common cause of dementia and causes 50%-80% of cases. In 2015, the Ministry of Public Health stated that the number of Thai patients with Alzheimer’s disease was about 600,000 and that the number was expected to increase to 1,117,000 in 2030.
Dr Sookjaroen said that Alzheimer’s disease, which is found in people above the age of 65, is associated with a decline in cognitive function that is worse than what it should be for a normal person at that age. The chief of Dementia Day Center said that relatives can notice if the elderly in their household have Alzheimer’s disease by noticing several signs.
“Symptoms start to appear from the mild cognitive impairment (MCI) stage. Patients with Alzheimer’s disease lose the ability to learn new things and memorise new events. They may also forget details of events or an entire event. They may also ask the same questions or say the same things repeatedly. Lastly, they also misplace common objects and some patients have mood swings,” Dr Sookjaroen said.
“Patients with MCI can perform basic tasks listed under Activities of Daily Living such as having meals, taking showers and getting dressed. However, they cannot handle Instrumental Activities of Daily Living or complex activities such as managing finances and shopping for groceries and necessities. Some patients are aware of their symptoms but do not want to accept them and try to hide them by taking notes. Relatives should take family members to
NEGATIVE PERCEPTIONS OF THE ELDERLY BEING A BURDEN SHOULD BE CHANGED SINCE THEY CAN STILL BE ACTIVE AND PRODUCTIVE PEOPLE
see a doctor when they are at an early stage or show signs of MCI,” Dr Sookjaroen advised.
Patients with Alzheimer’s disease in the final stage cannot walk, stand or even swallow food. They become bedridden and their communication skills worsen. Patients become children in elderly bodies, so they have to depend on caregivers, especially if they are at a severe stage of the disease. As a result, Alzheimer’s affects patients and their caregivers in terms of time, energy and financial resources. It is important that relatives or caregivers understand Alzheimer’s disease.
“A patient’s happiness depends on caregivers. Some caregivers try to remind what the patients forget and make them learn something they cannot remember. However, this is useless because the patients will never remember. Caregivers must go with the flow,” said Dr Sookjaroen.
People who have Alzheimer’s should go to a hospital for treatment. At Dementia Day Center, patients participate in several cognitive exercises such as cooking, singing, gardening, playing musical instruments and interacting with a robotic seal named Paro, in addition to medication.
For people who do not show Alzheimer’s symptoms and want to prevent themselves from getting it, Dr Sookjaroen advises they maintain cognitive exercises from a young age, so their cognitive reserve can be enhanced. Activities that can improve cognitive reserves include exercise, sufficient sleep, stress management, meditation and physical social interaction.
“Exercise can enhance neuroplasticity, which is the ability of the brain to form and reorganise its connectivity. Adequate exercise refers to aerobic exercise for 150 minutes each week. Meanwhile, sufficient sleep can help maintain levels of the beta-amyloid hormone which causes Alzheimer’s disease. People should also learn how to manage their stress. A study found that regular meditation can improve cognitive function. Physical social interaction is another way to improve cognitive reserves. People who have Non-Communicable Diseases should control their symptoms. For example, if someone has diabetes, he/she should change their diet and exercise more. If their symptoms do not improve, they must take medication,” said Dr Sookjaroen.
In 2020, the Department of Older Persons at the Ministry of Social Development and Human Security reported that in a total population of 66 million people, 11 million (16.73%) were above the age of 60. The National Statistical Office has forecast that Thailand will transition into an ageing society sometime between 2022 and 2030 and that the elderly population will increase to 26.9% of the total population.
In order to prepare, Dr Sookjaroen said the elderly should take care of their physical and mental health, plan their retirement, age actively by having a lifelong learning mindset and build their social connections. Meanwhile, state agencies should launch several services for the elderly.
“Negative perceptions of the elderly being a burden should be changed since they can still be active and productive people. There should also be technology training, so the elderly have access to digital platforms. Public service applications should be designed to be simple and easy to use. Since the elderly have a limited capacity to learn new things, innovations should be an extension of what they are already familiar with. This is why I also launched the podcast programme Healthy Brain, Happy Club because it is similar to a radio programme. State agencies should help the elderly get jobs as well, so they can be independent. These are things that state agencies should plan to assist the elderly in the future,” said Dr Sookjaroen.
Healthy Brain, Happy Mind Club welcomes members aged 45 or older. Membership is free. An online application form is available at bit.ly/3pO8agX. For more information, visit the Facebook page of Dementia Day Center, King Chulalongkorn Memorial Hospital at bit.ly/3FKc6WE.