China: No. 2, with a bullet: forecasts call for 20% growth in PCBs in what is quickly becoming the global epicenter for electronics production.
The next five years will be a key period in China. Asia-Pacific is expected to become the largest electronics component market, which in turn will create opportunity for component companies in China. Forecasts call for the electronic information market to grow 20%, to 2.5 trillion RMB, in 2004. (This includes national economic and social information systems, and the use of IT for updating traditional industries, national defense systems, import and export systems, etc.)
A stable social system coupled with new government policies all but guarantee the growth of the national economy. In its 10th Five Year Plan, China allocated billions in investment for five projects: 600 billion RMB to improve the power grid; 350 billion RMB to update railways; digitalization of 296 radio stations, 653 TV stations and 1,300 cable stations; 230 billion RMB for telecommunications restructuring and upgrading to improve networks for mobile, land and databases. By 2005, the total number of computers owned will grow to 60-80 million units, from 30 million today, mobile subscribers will increase from 150 million per sons in 2001 to 300 million, and telephone users will increase from 180 million in 2001 to 260 million. Furthermore, the Internet will reach 200 million users and cable TV will reach 150-200 million users. Industrialization of traditional industries will result in a huge market for everything from software to ICs.
Since China's entry into WTO, the outside environment has changed. Imports and exports have grown, bringing further incentive to supporting industries. Digitalization and networking are pushing the rapid development of the information industry. Software, [C, mobile telecommunications and networks, displays, notebooks, digital TV, optical telecommunications, new components, automobile electronics: all are new hot spots. The impact of the Olympics, and the building of information ports, microelectronics parks and software parks are other growth incentives. Western China's development strategy funds some 300 billion RMB for a dozen projects, enough to grow the electronic information industry by 30.4%. Urbanization offers more potential demand.
China will also become the world's IT manufacturing base, the source of production and export of dozens of products. For example, in 2003, China's market share for displays, cellphones, routers and telephones was 13%, 42%, 27%, 70% and 80%, respectively. Growth in network products, digital video equipment and telecommunications products means an even bigger market for electronics components (TABLES 1 and 2).
Growing demand for (and standardization of) electronics raises the requirements for production volume, efficiency and profit. It also means competition will become more complex. With China's entry into WTO, the domestic market is more open to foreign enterprises. Tariffs are coming down and the service industry has opened, giving foreign corporations the chance to compete with domestic firms. This "globalization" of the domestic market does raise general concerns. Reason: Prices for almost all consumer electronics are decided by the market, which means, first and foremost, price competition, but also means technology content, quality, service and innovation. Competition leads to industry consolidation. Take, as all example, the TV sector. In 2002, nine Chinese brands captured 77.1% of the unit volume and 59.2% of sales, while six foreign brands captured 14.8% and 31.1%, respectively. Chinese component manufacturers compete with foreign counterparts not only overseas but also at home. Middle- to low-end products usually become the focus of competition among Chinese companies (who should learn from experience to avoid intensive competition as it hurts all parties). The Chinese PCB industry is in a period of restructuring and consolidation.
All enterprises in mainland China, whether state-owned, privately owed, joint ventures or foreign-funded, are considered Chinese enterprises. These enterprises are registered with the Chinese government, abide by Chinese laws, pay taxes and submit economic statistics to the government. This survey of the Chinese PCB industry covers all companies registered with the government, including PCB, copper-clad laminate (CCL), equipment and material companies and academic institutions.
In 2002, the PCB output was 50.62 million [m.sup.2] (TABLE 3), good for 37.8 billion RMB (TABLE 4). About 84 million [m.sup.2] of CCL was produced, worth 5.2 billion RMB. By output, the growth rate for both PCBs and CCL exceeds 20%. However, sales arc growing by 5%. The reason is mainly price erosion.
Of the 662 PCB firms, 11% were state-owned; 29.9% were collectively owned; 22.7% were private, 18% were JVs, and 18.4% were owned outright by foreign firms. About 58% were located in south China, 28.4% in east China.
Of the 442 material suppliers, 11.8% were state-owned; 24% collectively owned, 19% private, 26% JVs, and 20% solely foreign owned. Geographically, 44% were in south China and 41% in east China.
Most companies are small: 52.5% have annual revenues of less than 5 million RMB and 37.6% have sales of 5 million to 50 million RMB. About 8% are large corporations (sales of 50 million to 500 million RMB) and 2% have sales over 500 million RMB.
Most of the large companies--59%--are foreign-owned. Twenty-four percent are JVs, 9% are state-owned, and the rest are collectives or private. Of the JVs, 31% are with Hong Kong firms, 17% with U.S. companies, 14% Japanese, 14% Taiwanese, 11% Singaporean, and 11% European. Of the foreign-owned companies, Taiwan ranked first (36%), followed by Hong Kong (20%), Japan (16%), u.s.(15%), Europe (7%) and Singapore (4%). Most large companies are based either in the Pearl River Delta (46%) or Yangtze River Delta (42%).
Sales from the top 44 PCB companies made up 41% of the national output. 2002 saw quite a lot of new capacity but because the end market wasn't strong, capacity utilization was around 60%. Another factor: dry-film tariffs. Starting Oct. 1, 2002, the dry-film tariff was dropped to 1.2 RMB per [m.sup.2] from 9 RMB, while the tax for fiberglass fell from 12% to 6%. In January 2003, the dry-film tariff dropped to 1.05 RMB per [m.sup.2] and epoxy resin dropped to 8%. Further reductions are coming.
It is estimated that from 2003 to 2005, PCB output will grow by 20%. In recent years, PCB products transitioned from single- and double-sided board to multilayer boards. Single-sided output will grow marginally. BGAs, CSPs and MCMs will drive higher technology curves (smaller sizes, fine lines, embedded resistors, etc.). PCB integration, signal loss reduction and buildup interstitial via hole (IVH) PCBs for CSPs and flip-chips will drive lines and spaces to 25/25 [micro]m and conductors to 5 [micro]m. There are about 50 flexible printed circuit makers in China, and many producers are adding capacity. Double-sided and multilayer flex output will grow quickly.
In 2002, there were 180 to 200 laser drills, mainly C[O.sub.2] type. This will grow by 50%. The C[O.sub.2] laser buildup process will be the main process for HDI boards. It will reduce hole diameters from the present 50-80 [micro]m to 30[micro]m.
Too many new enterprises and domestic expansion are the main reasons for oversupply and price erosion. That said, in 2003 factories were busy. By the end of 2003, China will likely have become the second-largest source for PCB production, after Japan.
Insofar as consumption is concerned, the auto industry is rapidly developing, providing a second source--behind telecommunications--for electronics growth. In 2002, auto unit volume reached 3.1 million; the expectation for 2003 is 3.3 million to 4 million units sold.
Laminates: Rapid Growth
CCL in 2002 enjoyed rapid growth. CCL suppliers had an average growth rate over 40%. Output and unit sales of epoxy-glass laminate were up 76% and 93%, respectively.
However, revenues did not increase much: just 10% on average. Worse, the net income of paper-based laminate firms fell 15%.
According to data compiled by the Copper Clad Laminate Association and the Customs Department, the Chinese market consumed more than 9,000 [m.sup.2] of CCL in 2002. The huge amount of CCL and the tremendous production capacity--over 11,000 [m.sup.2]--of the hundreds of suppliers in China, together with 140,000 tons of imported CCL impose tremendous pressure on prices. This pressure is especially large for non-flame retardant, paper-based CCL and common FR-4. Prices dropped, for a short period even below cost.
Exports did not fare so well. The trade deficit rose to 68%. Exported commodities were not competitive. Most were concentrated in Hong Kong. Products imported from U.S. and Japan were quite expensive due to the high-technology and high added value, while prices of products from Taiwan weren't as high but the import volume was 1.78 times of that of the previous year. Whether high-tech products or batch products, mainland China still lacked the ability to control the market. CCL sales likely grew in output and sales in 2003.
Standards are the symbol of a nation's sovereignty. As China becomes the second-largest PCB producer, it must establish and adopt its own national standards for electronics. This would serve to demonstrate the level of development within China and would protect and promote its place in the global market.
Green (lead-free) packaging will become the global passport to IC packaging over the next 10 years. (1) This means replacing traditional solders with lead-free ones, eliminating energy-consuming and polluting packaging processes, and minimizing waste of all kinds.
The European Union has proposed banning lead solders starting in 2008. Japanese companies are moving to eliminate it in 2004 or 2005. Some in the U.S. are also working on this. In general, green packaging is expected to be realized in developed nations by 2010. This no doubt signals a revolution in IC packaging. China's IC industry must recognize this and get integrated with global R&D efforts, lest it suffer when traditional products are outlawed by developed nations. How to reduce the threat of PCBs on the environment? How to face impending government legislation regarding electronics manufacturing waste? These are also important issues facing the industry.
Also, China must make strides in staying up-to-date on the global advancements including material and equipment trends. Domestic equipment is relatively low-tech, and is limited to processing basic PCBs. For batch automation and high-rel production, domestic plants rely on imported equipment. China must advance its own technology and adopt international manufacturing processes.
Today, globalization is a domestic challenge, yet the Chinese economy rests its hopes on it. Due to the downturn of the U.S. economy, global PCB output suffered. Many PCB manufacturers in North America are seeking long-term development via a global strategy, especially by promoting American standards across Asia. China's trade reforms and stable society is attracting overseas investors. This is a precious opportunity for Chinese enterprises. The domestic PCB industry will reach its potential peak only by chasing this chance and becoming integrated.
TABLE 1. Electronics Information Market, 2002-04 2002 2003 CHANGE 2004E CHANGE GDP 17,800 22,000 27% 25,000 15% Sales 14,000 16,500 19% 19,800 20% Profit 860 860 0% 900 4.6% Added Value 2980 3300 10.7% 3700 11% Export 920 1100 20% 1300 18% In 100M RMB. Source: China Ministry of Information Industry TABLE 2. Major Electronics Products, 2002-04 PRODUCT 2002 2003 CHANGE 2004E 2004E (CHINA ONLY) Mobile Phones (1) 120 150 25% 55 150 Switching (1) 58.9 105 78% 110 120 TVs (1) 52 56 7.7% 29 55 PCs (1) 14.6 23 58% 13 26 Displays (1) 49.3 55 12% 145 55 Software/Services (2) 1.1 1.8 64% 2.5 2 (1) Millions of Union. (2) RMB trillions. Numbers rounded. Note: Preliminary data. Source: China Ministry of Information Industry TABLE 3. 1995-2005 PCB Output 1998 1999 2000 2001 2002 2003 2004 2005 Single-sided 1397 1534 1665 1687 1821 1967 2125 2295 Double-sided 587 629 697 676 777 818 858 901 Multilayer 686 1202 1623 1648 2135 2800 3572 4449 Flex 25 86 123 190 326 490 734 1101 Total 2695 3452 4108 4201 5062 6074 7289 8747 In 10 [km.sup.2]. Totals may differ slightly due to rounding. Source: CPCA TABLE 4. 1995-2005 PCB Production Value 1998 1999 2000 2001 2002 2003 2004 2005 Single-sided 20 22 23 21 20 22 23 25 Double-sided 51 52 59 56 57 59 61 64 Multilayer 121 186 252 265 271 337 409 484 Flex 0.5 7.8 10 18 30 41 55 75 Total 192 268 344 360 378 459 545 647 In 100M RMB. Totals may differ slightly due to rounding. Source: CPCA TABLE 5 Exports and Imports 2000 2001 2002 2003 Exports 1.41 1.52 1.81 2.08 Imports 1.64 1.93 2.36 2.86 Balance 0.223 0.413 0.554 0.779 In US$ billions. Source: China Electronic Component Association
(1.) Chins Investment of Industry Development Organization of United Nations.
WANG LONGJI is president of the China Printed Circuit Association (cpca.org.cn/en/) and a senior engineer with more than 30 years experience in PCBs. He is also the president and executive editor of Printed Circuit Information.
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|Title Annotation:||China's PCB Market|
|Publication:||Printed Circuit Design & Manufacture|
|Date:||Mar 1, 2004|
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