EquityResearchAsiaPacificFigure1:Chinatechnettrade(importsminusexports)waterfall,2018(USDbn) 250126200150100 80(141)

TheCreditSuisseChinaInvestmentConference(CIC)isoneofthemostexclusivebusinessgatheringsintheGreaterChinaregion,bringingtogetherbusinessleadersandentrepreneursfromaroundtheregion,aswellasglobalinstitutionalandprivateinvestors.Thisyear,theCreditSuisseChinaInvestmentConferencewillexplorethethemeof‘GreatExpectations’–atopicthatembracesthecontinuedprogressionofChinaandtheadvancementofsomeofthecountry’smost50SPEDisplayEquipSPEDisplayEquipSemi-MemorySemi/ICexMemoryMobileHandsetTelecomEquipmentDisplayPrintedCircuitsPassiveComponent(52)Others(20)TotalTechNetImports

12 11

(36)

8(25) (3)

dynamiccompaniesagainstthecurrentgeopoliticalandmacroeconomicbackdrop.ResearchAnalystsManishNigam85221017067manish.nigam@Source:CEIC,CreditSuisseestimatesTechisthelargestChineseimport;localizationanationalpriority.TechnologysectorformsthelargestpartofChina'simportbasket(21%)andsemiconductorsaccountfor70%ofallitstechimports.ThisisdespitethefactthatChina'sownproductionofsemiconductorshasgrownata20%CAGRsince2011.Thisheavydependenceontechnologyimportshasledtoseveralpolicyinitiativessince2000fromtheChinesegovernmenttohelpgrowthedomestictechnologyindustryformultiplereasonsincludingnationalsecurity,assuredsupplyavailability,andaninteresttocontinueeconomicandhumancapitaladvancementgrowingcapabilityinhighervalueadd/IPareas.Risinggeopoliticalissueshaveaddedurgencytotheseefforts.Adeep-divereport.Inthisin-depthreport,leveragingourglobaltechnologyanalystteam,weoutlinethecurrentmarketstructureofvariouskeytechsub-sectors,highlightChina'sgameplantolocaliseproductionandthenprovideourconclusionsaboutthelikelihoodofChina'ssuccessinthesesectors.Chinalocalization:Somesuccess;butsomeareasremainaworkinprogress.Chinahasachievedalotofsuccessintelecomequipment,hardwaremanufacturing,display,severalkeycomponentsandsomesuccessstoriesinICdesignmainlyinmobileandconsumer.Itisdevotingalotofresourcesinlocalisingsemiproductionanddesign,but

RandyAbrams,CFA886227156366randy.abrams@KeonHan82237073740keon.han@KynaWong85221016950kyna.wong@ChaolienTseng85221016795chaolien.tseng@JerrySu886227156361jerry.su@CliveCheung85221017069clive.cheung@sofarwithonlymodestsuccessoutsideHuawei(andislikelytoremainmodesteveninthe mediumterm).Itsdependenceonimportedequipmentandcertainkeymaterialsislikelytoremainunchangedoverthemediumtermaswell.Whilethisreportismeantmoreasaprimeronthetopiclayingoutthedevelopmentsinkeytechsectorsandoutliningourconclusions,onpages4and5wesummarisetheglobaltechsupplychainmap,indicateourestimateofChina'schancesofsuccessinvariousareasanditslikelyleaders.

Pleaseseesub-sectorsforallcontributinganalystsAsiaTechnologyStrategyAsiaTechnologyStrategyChina:Canitgaintechindependence?Technology|StrategyCICSpecialDISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldFocuschartsFigure2:Chinatotalimportsbreakdown,2018(%) Figure3:ChinasemiindustryrevsandYoYgrowth Beverages&

Food&Live

Other

1,600

1,4871,22199684370760046638230532125514240%1,4871,221996843707600466382305321255142NonFoodRawMaterials,13%MineralFuels&Lubricants,16%Animal&VegetableOils,0%

Tobacco,0%Animals,3%

ManufactueredGoods,10%

Machinery&TransportEquipment,18%

1,4001,2001,0000

35%30%25%20%15%10%5%0%Chemicals,10%

Textile,Rubber,Minerals,7%

Tech,21%

200720082009201020112012201320142015201620172018ChinaSemiSales(Rmbbn) YoY（%）Source:CEIC,CreditSuisseestimates Source:CEICSemiCapEquipmentFigure4:Technologysupplychain–amapofChinesesuppliers SemiCapEquipmentCMPSlurry:AnjiChemicals:Runma,Jingrui,Huayi,SinyangClean:CMPSlurry:AnjiChemicals:Runma,Jingrui,Huayi,SinyangClean:ACM Back-endpackage&testSubstrate:Access,Fastprint,SCCWafer:AST,FerrotechJV,ESWIN,Simgui,ZingSemi,ZhonghuanLithographyrelated:Kempur,RuihongSputtering:KFMIExposure:Deposition:PiotechInspection:Etch:AMEC,NauraPhotoresistprocessing:KingsemiPanel:BOE,Tianma,CECPanda,CSOTCasing:BYDE,JuTeng,Tongda,FIISubstrate:Access,Fastprint,SCCWafer:AST,FerrotechJV,ESWIN,Simgui,ZingSemi,ZhonghuanLithographyrelated:Kempur,RuihongSputtering:KFMIExposure:Deposition:PiotechInspection:Etch:AMEC,NauraPhotoresistprocessing:KingsemiPanel:BOE,Tianma,CECPanda,CSOTCasing:BYDE,JuTeng,Tongda,FIITouch/Fingerprint:O-Film,Truly,Q-TechLens:Optical,Connector:Surveillance:SunwayLEDs:SananTV:Skyworth,Changhong,Haier,Hisense,Konka,TCLSmartphoneBrandsHandsets:Huawei,Oppo,Vivo,Xiaomi,ZTE,Coolpad,Lenovo,TCLJCET,WaferCanSemi,CR CSP,SJSemi,BiwinHuaqin,Wingtech,TINNO,BYD,Longcheer,USIPCBrandsTechDownstreamDistributorsSynnex(Taiwanlisted),DigitalChina,VST PC/Server:Lenovo,Inspur,MobileHiSilicon,Spreadtrum,ASR,Pinecone,(Sanechip) Razer,Servers/AI:HiSilicon,Cambricon,Montage,Alibaba,EeasyHuaxinton,Big Fish,ThinkForce,Illuvatar,Cambricon,Bitmain,Zhaoxin,Loongsan,eBangGPU:Jingjia,ZhoaxinMCU:Gigadevice,Ingenic,UnigroupGuoxin,SinoWealth,Silan,Goodix,Datang,Huada,Giantec,Yixin,MindMotion,WinnerMicroRFIC:RDA,Vanchip,Huawei,Maxscend,SanechipsHQMart,WillSemi,FortuneTech,WuhanP&S,INtron,ApexAce,Smart-core,Retail:NetworkingOEMsEndConsumerICDistributorsCM/ODMsTVBrandsComponentsSemiMaterialsTouch/FingerprintIC:Goodix,Silead,Fortsense,Betterlife,BYDCMOSimageWillSemiGalaxyCore,Superpix,ArtivisionAnalog:Awinic,SGMicro,BYD,OnBright,Silergy,Nexperia,DriverIC:SinoWealth,SolomonSystech,Smartcard:TongfongGuoxin,Datang,Huada,Nationz,Fudan,HuaHongICMemory:GigaDevice,YMTC,Changxin,FujianJinhua,RelianceMemory(Rambus/GigaJV),ISSI,GiantecSurveillance/Video:Huawei,Fullhan,Vimicro,Ingenic,Artosyn,Goke,Eeasy,Dahua,Yitu,HorizonRoboticsFPGA:Gowin,FudanMicro,UnigroupGuoxin,Huada

Techtronics,Wisewheel,Sunray EDA EDAHyperform

Networking:

Gome,SuningOnline:Alibaba,JD.comSource:Companydata,CreditSuisseResearchChina:Canitgaintechindependence?Anettechexporter;butaheavysemiimporterImportoftechnologyproductsconstitutesthelargestproportionoftotalimportsbyChinaforanygivensector.Thisproportionhasgrownfromhigh-teensafewyearsagoto20-23%inrecentyears.Withintechnology,importofsemiconductorsbyfarconstitutedthelargestproportion(US$311bn;~70%oftotaltechimports).Importofsemisanddisplayequipmentwasanotherimportantpartoftotalimports(5%).WhileChinaisalargeimporteroftechnologyproducts,itisalsoalargeexporter,actuallyexportingUS$20bnmoreoftechproductsthanitimportedin2018—itisalargenetimporterofsemiconductorsandequipmentbutisalargenetexporterofdownstreamproductssuchashandsetsandconsumerelectronics,andalsotelecomequipment.LocalisingsemiproductionanationalpriorityWhiletheChineselocalsemisproductionhasbeengrowingata20%CAGRinrecentyears,Chinaremainsalargeimporterofsemis,andhence,theneedtocontinuetofocusondevelopingthelocalindustry.Geopoliticaldevelopmentsinrecentyears,particularlytheinclusionofseveralChineseentities(notablyHuawei,Hikvisionamongstothers)bytheUSonitsrestrictedEntityList,furtheraddsurgencytothislocalisationdrive.Thegovernmenthashadseveralpolicyinitiativesovertheyearsculminatinginits'MadeinChina2025'initiativein2015.SubstantialfundingisbehindtheNationalICDevelopmentGuidelineinitiative,includingestablishingtheNationalICFundwhichraisedUS$20bnin2014andisnowasecondroundforUS$29bn,alongwithUS$120-140bnfrompublic/privatefunds.Thefundhasinvestedincreatingnationalchampionsthatcancompetegloballyacrossmemory,foundry,back-end,suppliers,anddesigncompanies.TosupplementtheNationalICFund,theChinesegovernmentbelievesastrongpolicysupport,growingecosystem,andnationalfundbackinginthesemiconductorindustrywillattractanevengreateramountofinvestmentfromtheprivatesector,financialinstitutions,andoverseasinvestors.LocalprivateVCsarealsoworkinginconjunctionwiththegovernmentandtheNationalICFund.TsinghuaUnigroupisthelargestfundandisfocusedonestablishingmemorycompaniesinChina.Chinalocalisation:AmixedsuccessstoryChinahasalreadyshownsuccesswiththeemergenceofcompaniesacrossthetechsupplychain,withsomenotableonesinhardwareandcomponents.Thepresenceofalargeandgrowinghardwaresectorispushingthenationalinteresttoalsodevelopitssemiconductorsectorforeconomicbenefitsmovingintohighervalueareasandlesseningrequirementonimports.AlocallystrongsemiconductorsectoralsohelpsChina'snationalsecurityinterestincontrollingitsinformationtechnologyinfrastructure.Whilewediscussingreaterdetailthedynamicsatplayineachofthetechsubsectorslaterinthereport,ourconclusionsforeachofthesesectorsareasfollows:(1)Memorysemiconductors:Chinastillhassomedistancetogobeforetastinganysuccess,(2)Logicsemiconductors:ChinahaspocketsofstrengthinICdesign,backendandmaturefoundrynodes,butstilllagsinseveralareas,(3)Semiequipmentandwafers:Chinaislagginginwafersandfarbehindinequipmentandislikelytoremainso,(4)Enterpriseandservers:Chinesevendorsstronginnetworking;serverexpansioninternationallymayfacechallenge,(5)Display:ChinatodominateTFTpanels;maysucceedinOLEDbutstilllagkeytoolsandrawmaterials;KoreawilllargelyleaveTFTspace,(6)Components:Chinaislargelyself-reliant.Withinspecificcomponents,ourconclusionsare:Acoustics:Mostpartslikelytobelocalised,(b)Antenna:Self-reliant,workinprogresstomovetomoreadvanceddesigns,(c)Casing:Lagginginmetalcasingbutaleaderelsewhere;stilldependentoncasingequipmentimports,(d)CameraModule:Largelyself-reliant;willincreaseglobalshare,(e)CMOSImageSensor(CIS):AcredibleChineseplayernow,andhence,canbeself-reliant,(f)Lens:Largelyself-reliant,(g)MLCC:Chinesearelaggingandlikelytodosointhemediumtermtoo.Onpages4and5,wesummarisetheglobaltechsupplychainmap,indicateourestimateofChina'schancesofsuccessinvariousareasandhighlightChinesecompanies(inbold)thatareeitherthecurrentorthelikelyfutureleaderswithintheirrespectivesectors.

Techimportsare~21%oftotalChineseimports……Semisare~70%ofalltechimportsSeveralpolicyinitiativessince2000supportingthedevelopmentofalocaltechindustrySupportfrommultiplesources:NationalICFund,policyinitiatives,R&Dandcapexsubsidies,localgovernment,andinvestmentsfromprivateVCChinaisstillfarofffromclosingthegaponsemimanufacturingatleadingedge(bothmemoryandlogic)andwouldlikelystillbeimportingmostofitssemiequipmentintheforeseeablefutureChinawillincreaseitsdominanceindisplay(TFT-LCD)andnetworkingandmakesomeprogressinserversandOLEDpanelsChinawillcontinuetolocaliseahigherproportionofcomponents,thoughwouldstillbedependentonsomeimportedpartsoverthemediumterm4November2019AsiaTechnologyStrategyGlobaltechsupplychain4November2019AsiaTechnologyStrategyFigure5:TechSupplyChain–ChinavsWorld ChancesofChina'ssuccessin5yearsChinaSupplyChain*US-KeySuppliersNon-USKeySuppliersSemiconductorLithographyLimitedSMEEEUR:ASMLJP:Nikon,CanonDepositionNaura,PiotechLamResearch,AppliedMaterialsKR:WonikIPS,TES,EugeneTech,PSKJP:TokyoElectronSemiCapEquipmentInspectionGrand,RaintreeKLA-Tencor,AppliedMaterialsKR:Unitest,TechwingJP:HitachiHightechnologiesEtchAMEC,NauraLamResearch,AppliedMaterialsKR:WonikIPS,TESJP:TokyoElectron,HitachiHightechnologiesPhotoresistProcessingKingsemiJP:TokyoElectron,SCREENCleanACMLamResearch,AppliedMaterialsJP:SCREEN,TokyoElectron,ShibauraMechatronicsSubstrateAccess,Fastprint,SCCKR:SEMCO,LGIWaferNSIG(?),AST,FerrotechJV,ESWIN,Simgui,ZhonghuanKR:SKSiltronTW:GlobalWafers,FormosaSUMCO,WaferWorksJP:Shin-EtsuChemical,SUMCO,Ferrotec,RSTechnologiesSemiMaterialsLithographyLimitedKempur,RuihongKR:DongjinSemiJP:JSR,TokyoOhkaKogyoSputteringKFMICMPSlurryAnjiKR:Soulbrain,KCTechJP:FujimiIncorporatedChemicalsRunma,Jinrui,Huayi,SinyangPhotronicsKR:SKMaterials,Soulbrain,WonikMaterials,DNFEDAToolsMinimalHyperformSynopsys,CadenceDesignSystemsMobileProcessorHighHiSilicon,UniSOC,Pinecone(Xiaomi),ZTE(Sanechip),Allwinner,Rockchip,Leadcore,ASRMicroQualcommKR:SamsungTW:MediatekServers/AILow(servers);Medium(AI)HiSilicon,Cambricon,Montage,Alibaba,EeasyTech,Huaxinton,BigFish,ThinkForce,Illuvatar,Bitmain,Zhaoxin,Loongsan,eBangIntel,AMD,ARM(certaintechnologies)EUR:ARMGPULimitedJingjia,ZhoaxinNVIDIA,AMDMCUMediumGigadevice,Ingenic,UnigroupGuoxin,SinoWealth,Silan,Goodix,Datang,Huada,Giantec,Yixin,MindMotion,WinnerMicro(Fragmentedmarket)Microchip,TIEUR:NXP,Infineon,STMicroelectronicsJP:RenesasRFIC,RFFrontEndMediumVanchip,HiSilicon,Maxcend,Sanechip(ZTE),UniSOC,WillSemi,EspressifSystemsQorvo,Skyworks,Qualcomm,BroadcomTW:WinSemi,VPEC,AWSC,Richwave,Mediatek(Airoha),ACXJP:Murata,TaiyoYudenConsumerHighRockchip,Allwinner,Amlogic,Actions,UniSOC,HiSilicon(Fragmentedmarket)AMBA(Ambarella),Microchip,CypressSemiTW:Mediatek,RealtekFablessICDesignTouch/FPICHighGoodix,Silead,Fortsense,Betterlife,Chipone,BYDMicroelectronicsSynapticsTW:Egis,ElanCMOSImageSensorHighWillSemi(OVT),GalaxyCore,Superpix,Artivision,BYDMicroelectronics,SmartSensONSemi,STMicroKR:Samsung,SKHynix,PixelPlusEUR:MelexisJP:Sony,Panasonic,CanonAnalog/DiscreteMediumHiSilicon,Awinic,SGMicro,BYD,OnBright,Silergy,Nexperia,Huada,ChiponeTI,AnalogDevices,MaximIntegrated,ONSemi,CirrusLogic,VishayEUR:STMicroelectronics,InfineonJP:Mitsubishai,Rohm,ToshibaTW:Mediatek(Richtek)SmartcardHighTongfongGuoxin,Datang,Huada,Nationz,Fudan,HuaHongIC(Fragmentedmarket)SurveillanceHighHiSilicon,Fullhan,Vimicro,Ingenic,Artosyn,Goke,Eeasy,Dahua,Yitu,HorizonRoboticsONSemiFPGAMediumGowin,FudanMicro,UnigroupGuoxin,Huada,Anlogic,HerculesMicro(leadershipundecided)Xilinx,Altera,Intel,LatticeSemiconductor,MicrochipFoundriesLow(leadingedge);High(maturenodes)SMIC,HuaHong,ShanghaiHuali,ASMC,CSMC,SiEN,Silan,CanSemi,CRMicro,YantaiRaytronGlobalFoundries,IBMTW:TSMC,UMC,VanguardBack-endpackage&testHighJCET,Tongfu,TianshuiHuatian,ChinaWaferLevelCSP,SJSemi,Kaifa,BiwinAmkor,R&DAltanovaTW:ASE,KingYuan,SPIL,Powertech,ChipMOS,Chipbond,KYEC,Kingpak,CHPT(probe)KR:Unitest,Techwing,LbsemiconMemoryLimitedYMTC,CXMT,Changxin/Gigadevice,FujianJinhua,RelianceMemory(Rambus/GigaJV),ISSI,GinatecMicron,Intel,WesternDigitalKR:Samsung,SKHynixTW:NanyaTech,Macronix,WinbondJP:Kioxia(ex-ToshibaMemory)Note:*=Namesinboldareeitheralreadyorlikelytobeleaderinsupplychainin5years’time4Source:Companydata,CreditSuisseResearch44November2019AsiaTechnologyStrategyFigure6:TechSupplyChain–ChinavsWorld(Con’t) 4November2019AsiaTechnologyStrategyChancesofChina'ssuccessin5yearsChinaSupplyChain*US-KeySuppliersNon-USKeySuppliersOthersPanelHighBOE,Tianma,CECPanda,CSOT,Truly,Visionox,EDO,Royole,OlightekKR:Samsung,LGDTW:AUO,Innolux,HannStarJP:Sharp,JapanDisplay,JOLEDCasingHighLens,BielCrystal,BYDE,AAC,Everwin,Tongda,CNInnovationsTW:Foxconn/FII/FIH,Casetek,Catcher,Everwin,JuTengKR:KhvatecKR:Partron,Mcnex,Dreamtech,CrucialtecKR:SEMCO,LGInnotek,JAHWA,Patron,Mcnex,Powerlogics,CammsysTW:Largan,Genius,PTOTJP:Kantatsu,Mitsumi,TDK,Alps,Shicoh,SharpTW:Largan,GeniusKR:SEMCO,Sekonix,Elcomtec,KolenJP:KantatsuEUR:STMicroelectronics,BoschKR:EM-Tech,BluecomTW:Merry,InventecJP:HosidenJP:Hirose,JAE,Kyocera,Panasonic,DaiichiSeiko,IrisoTW:FITTW:GeovisionEUR:EthertronicsKR:Partron,Wisol,SEMCOTW:AudenJP:Sumitomo,MurataKR:SEMCO/SamwhaTW:Yageo,WalsinTechJP:Murata,TDK,TaiyoYuden,KyoceraTouch/FingerprintHighO-Film,Truly,Q-tech,Speed,HolitechCCMHighSunnyOptical,O-Film,QTech,Truly,Luxvision,Holitech,Shine,SZSeasonsONSemi,Omnivision,Lumentum,Finisar,Vertilite,Viavi,Jabil,IIVILensHighSunnyOptical,AAC(?),O-film,StarJuYu,LceOptic,HuaxinComponentsAcousticHighGoertek,AAC,Luxshare,NeoMEMS,MEMSensing,SpeedKnowles,InvenSenseConnectorHighLuxshare,Sunway,EverwinTEConnectivity,Amphehol,MolexSurveillanceHighHikvision,Dahua,UniviewAntennaHighSunway,Speed,AAC,Luxshare,JESONcom,DemanAmphenol,Skycross,Sky-WaveMLCCLow(high-end);High(commodityend)Fenghua(?),ChaozhouThreeCircle(?),Torch,Hongyuan,Sinocera,Sunlord,Hongda,TianliAVX,Kemet,VishayPCBHighShengyi,ShennanCircuit,MFLEX,VictoryDuPont,TTMKR:SEMCO,BH,KoreaCircuit,Daeduck,InterflexTW:Taimide,Wus,Mortech,Taiflex,Thinflex,AEM,Avary,Flexium,CareerJP:UBE,MitsubishiGas,NOK,Fujikura,SEI,Ibiden,KyoceraEquipmentLowNaura,Han'sLaser,DalianZhiyun,LiandeKR:APS,SFAEngineering,WonikIPS,ViatronJP:Canon,HirataCorporationi,TokyoElectron,SCREEN,ULVAC,V-technology,Shibaura-MechatronicsKR:DuksanNeolux,LGChem,Samsung,SDI,KHVatec,SKCKolonPITW:TPK,ChengMei,BenQMaterial,GISJP:NewNipponSteel,IdemitsuKosan,NittoDenko,SumitomoChemTW:Novatek,FocalTech,Himax,Ilitek,Fitipower,RaydiumKR:Siliconworks,Magnachip,SamsungLSIDisplayMaterials/ComponentsLowtomediumJilinOptical,RuiYuan,PuyangHuicheng,Valiant,Selen,EternalMaterial,Kangdexin,DongxuOpto,CaiHongOptoCorning,UniversalDisplay,DowChemical,MerckDriverICLowtomediumSinoWealth,SolomonSystech,ChiponeLEDsHighSanan,HCSemitek,CanyangOpto,ChangelightCreeEU:OsramKR:SeoulSemIConductor,Samsung,LGInnotekTW:Epistar,LextarJP:Nichia,Osram,ToyodaGoseiODMs/EMSHighHuaqin,Wingtech,TINNO,BYDE,Longcheer,USIFlextronics,JabilCircuitTW:Compal,HonHai,Inventec,Pegatron,Quanta,WistronSmartphoneHighHuawei,Oppo,Vivo,Xiaomi,ZTE,Coolpad,Lenovo,TCL,TranssionAppleKR:Samsung,LGEJP:Sony,SharpPCHighLenovo,Haier,Hasee,Huawei(?),Tongfang,Xiaomi(?)HP,Dell,Apple,MicrosoftTW:Acer,Asus,MSIKR:Samsung,LGJP:SharpEnterprise/ServerMediumHuawei,GreatWall,H3C,Hikvision,Inspur,Lenovo,Powerleader,Tongfang,Sugon,ZTEHPE,Dell,Supermicro,CiscoTW:Inventec,Quanta/QCT,Wistron/WiwynnJP:FujitsuNetworkingOEMsHighHuawei,H3C,ZTE,TP-LinkCisco,Arista,HPE,Juniper,ExtremeKR:SamsungNote:*=Namesinboldareeitheralreadyorlikelytobeleaderinsupplychainin5years’time5Source:Companydata,CreditSuisseResearch5TableofContentsFocuscharts 2China:Canitgaintechindependence? 3Anettechexporter;butaheavysemiimporter 3Localisingsemiproductionanationalpriority 3Chinalocalisation:Amixedsuccessstory 3Anettechexporter;butaheavysemiimporter 8Chinaisbynowanettechexporter 10Localisingsemiproductionanationalpriority 12ChineseICindustrypolicytimeline 13MadeinChina2025:SemisandITsectorsthefocus 14Fundingofsemislocalisationinitiative 15Chinalocalisation:Amixedsuccessstory 18Memorysemiconductors–stillsomedistancetogo 18Logicsemiconductors:pocketsofstrengthinICDesign,backendandmaturefoundrynodes Semiequipmentandwafers:lagginginwafersandfarbehindinequipment 21Enterpriseandservers:Chinesevendorsstronginnetworking;serverexpansioninternationallymayfacechallenges Display:ChinatodominateTFTpanels;maysucceedinOLEDbutstilllagsinkeytoolsandrawmaterials Components:largelyself-reliant 24Memorysemiconductors 27Currentmarketstructure 27China'sgameplan 29Conclusion 34LogicSemiconductors 37ICdesign:China’spresencerisinginconsumerandmobile,stilllagsinhighervalueareas37Foundry:Chinalagsonadvancedcapacity,morecompetitiveonthematurenodes Back-end:ChinahasusedM&Atogainastrongerpresence 48Fundingofsemiambitions 50Conclusion:China’spresencelagginginfoundry,risinginOSAT,varyinginICdesign 54Semiequipmentandwafers 59China'sgameplan 61Conclusion:Lagginginwafersandfarbehindinequipment 61Enterpriseandservers 63Currentmarketstructure 63China'sgameplan 67Conclusion 69Display 71Currentmarketstructure 71Chinagameplan 74Conclusion:Chinesedisplaymakersbecomingmoremeaningfulbutstilllagkeytoolsandrawmaterial Components 84Acoustic 85Antenna 89Casing 91Cameramodule 95CMOSImagesensor(CIS) 101Lens 103MLCC 106PCB/substrate 108Anettechexporter;butaheavyimporterImportoftechnologyproductsconstitutesthelargestproportionoftotalimportsbyChinaforanygivensector.Thisproportionhasgrownfromhigh-teensafewyearsagoto20-23%inrecentyears.Figure7:Chinatechimportsaspercentageoftotalimports 23%22%22%21%20%20%19%19%18%19%18%17%24.0%23%22%22%21%20%20%19%19%18%19%18%17%23.0%22.0%21.0%20.0%19.0%18.0%17.0%16.0%15.0%2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Source:CEICTechnologyimporttotaleduptoUS$449bnin2018,growing19%YoY.TechremainsthelargestpartofthetotalChinaimportspie.Machinery&transportequipment,Oilandotherfuels,andnon-foodrawmaterialsconstitutedtheothermajorsectorsofimports.Withintechnology,importofsemiconductorsbyfarconstitutedthelargestproportion(~70%)ofimports,withmemorysemitotalinguptoUS$122bn(~27%oftotaltechimports)andothersemistotalinguptoUS$189bn(~42%oftotaltechimports)in2018.Importofequipment—toproducesemisanddisplayparts—wasanotherimportantpartoftotalimports(US$23bn;5%oftotal).Chinaalsoimportsalargepartofitstelecomequipment(US$41bnin2018;9%oftotaltechimports),whileatthesametimeisalargetelecomexportertotheworld,highlightingtheinterdependenciesoftheglobaltechnologysector.Figure8:Chinatotalimportsbreakdown,2018(%) Figure9:TotalChinatechimportsbreakdown,2018(%) Beverages&Tobacco,0%

Food&LiveAnimals,

OtherManufactuered

Passive

Others,

SPE,3%

DisplayEquip,2%NonFoodRawMaterials,13%MineralFuels&Lubricants,16%

Goods,10%

Machinery&TransportEquipment,18%

Component,3%PrintedCircuits,3%Display,0%TelecomEquipment,MobileHandset,0%

Semi-memory,27%Animal&VegetableOils,0%Chemicals,10%

Textile,Rubber,Minerals,7%

Tech,21%

Semi/ICexmemory,42%Source:CEIC,CreditSuisseestimates Source:CEIC,CreditSuisseestimatesAriseinmemoryASPsoverthepasttwoyears,andstronggrowthinthemarketshareforChinesesmartphonebrandssuchasHuawei(whichinturnconsumesalotofmemory),ledtoastronggrowthinimportofmemorysemiconductorsoverthepasttwoyears—fromUS$64bnin2016toUS$122bnin2018.Acombinationofsubduedgrowthincomputingmarketsandahigherlocalisationofnon-memorysemis(seemoredetailslaterinthereportunderthelogicsemiconductorsection),non-memorysemiimporthasbeenflattishinrecentyears—rangingfromUS$172bntoUS$192bninthepastfiveyears.Importantly,China'spushtocreateadomesticsemianddisplayproductionindustryhasmeantthatequipmentimportshavecontinuedtogrowrapidlyfromjustUS$8bnin2014toUS$23bnin2018.Figure10:Equipment,MemoryandOtherSemis–Chinaimportgrowth(YoY%) YoY%603740383620212018171310934(3)(9)(8)YoY%603740383620212018171310934(3)(9)(8)605040302010-(10)(20)

2013

2014 2015 2016

2017

2018Equipment Semi-memory Semi/ICexmemorySource:CEIC,CreditSuisseestimatesWhileChinaisalargeimporteroftechnologyproducts,itisalsoalargeexporteroftechnologyproducts,actuallyexportingUS$20bnmoreoftechproductsthanitimportedin2018(moreonthatlater).Technologyexports(US$469bn)constituted19%oftotalChineseexportsin2018,growing11%YoY.Exportsofmachineryandtransportequipmentform~30%oftotalChineseexportswithothermanufacturedgoodsaccountingforanother23%oftotalexports.Withintechnologyexport,exportofmobilehandsets(US$141bn)constitutesthelargestpartofthepie,followedbyexportsofotherconsumerelectronicsproducts(US$99bn)andtelecomequipment(US$77bn).GrowthinHuawei's(andalsootherChinesebrands)globalmarketsharehasdrivengrowthinexportofhandsetsoverthepasttwoyears,thoughsharegainsarestartingtoslow,giventhealreadyhighshareforChinesebrands,andincrementally,asthefullimpactoftheHuawei'sinclusionintheUSEntityListstartstoshow.Figure11:Chinatotalexportsbreakdown(asof2018) Figure12:MobileHandset,TelecomEquipmentandOthers– Chinaimportgrowth