August 23,
2006
This
article is the third in a series of three articles that look at the growth of
component production in China.
There
is a growing contingent of indigenous component manufacturers in China. In the
first two articles in this series, we noted that Chinese component suppliers
are not yet making inroads into European and North American markets. This is
partially due to their small size. “Chinese component vendors are still small,”
says Byron Wu, director of China research for iSuppli Corp., a research group
in El Segundo, Calif. “They can’t afford to build factories in North America
and Europe.”
China’s
parts suppliers, however, are growing quickly as they sell to China’s electronics
market which is experiencing stellar growth. According to Peter Kong, president
of Arrow Asia Pac, a unit of Arrow Electronics Inc. in Melville, N.Y., China’s
gross domestic product (GDP) is growing at 10 percent per year. “If you take
the GDP growth of the first half of 2006, it has already far overtaken that of
North America, Europe and Japan,” says Kong.
Chinese
component manufacturers come in many flavors. Some are indigenous suppliers
that sell their products locally and export some to Europe and North America.
Others are multinational manufacturers with facilities in China. They also
export and sell locally. Still others are multinational manufacturers that have
set up plants in China specifically to satisfy their customers in China.
Kong
notes that some contract manufacturers are now moving to China not just for the
low cost of doing business, but also to get close to indigenous Chinese
customers who constitute a mammoth market. “The China and Hong Kong contract
manufacturing market for electronics in 2006 is estimated to be worth over $60
billion, far outranking the rest of Asia,” says Kong. “In our opinion, the only
region that can compete with China for growth is India.” Kong notes that
India’s semiconductor market is growing at more than 20 percent per year.
While
component makers in China started by producing very basic, mostly passive,
components, they are gaining in sophistication. “In terms of technology,
Chinese electronics component manufacturers are evolving rapidly, especially in
the areas of passive, electromechanical and connector products,” says Kong.
“Take the printed circuit board (PCB) business. We see the entire Chinese
market dominated by the Hong Kong and Chinese indigenous players.” He notes
that the market also includes products from Japan, Europe and North America
that have been transplanted into China.
Kong
notes that indigenous Chinese manufacturers are also beginning to dominate some
areas of the passive, electromechanical and connector market in China. Kong
says those suppliers are also doing well as exporters. “China has become a
significant worldwide source for PCBs, connectors and electromechanical
products such as switches,” says Kong.
Many
of those connectors and electromechanical products produced by Chinese suppliers
go into China’s huge market of cell phones. According to the “People’s Daily,”
China produces 400 million units per year, roughly half of the world’s mobile
phones. “This is a major market for electronic parts,” says Kong. “Mobile
phones are one of the largest component markets for semiconductors, passive and
electromechanical components.”
Kong
points to recent data from ChinaKnowledge.com that claims there are 416 million
mobile phone subscribers in China. “The country already has more mobile phones
than fixed-line phones,” says Kong. “This is far and away the world’s largest
market and it keeps growing month on month.”
On
the semiconductor front, local Chinese companies have not yet made a big impact
on the market. “Chinese brands are still struggling to enter and make their
presence felt in the semiconductor market,” says Kong. “Although some companies
such as SMIC are upgrading, the IC technology mainly comes from Western
countries.”
As
for the advantages and disadvantages of indigenous Chinese components, Kong
offers the following list:
Advantages
of China components:
Disadvantages
of China components:
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