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Subject: China to Buy $2 Billion In U.S. Chip-Making Gear<By Daniel
Date: Wed, 18 Nov 92 04:53:56 EST
Message-ID: <9.1992Nov18.045356@AmeriCast.com>

China to Buy $2 Billion In U.S. Chip-Making Gear<By Daniel
Southerland=Washington Post Staff Writer=

 AUSTIN, Tex. - Chinese officials have informed American high-
tech companies that China intends to purchase as much as $2 bil-
lion worth of U.S. equipment to produce computer chips over the
next two to three years, according to industry sources.

 High-level Chinese officials first raised the possibility of
such huge purchases during a meeting with American chief execu-
tives in Beijing in May. They reconfirmed their intentions during
an international semiconductor convention held  here last week,
the sources said.

 The Chinese decision appears to signal Beijing's intention to
become a power in the highly competitive global computer industry
over the next decade. The equipment it is seeking is used to make
the tiny silicon chips that are the basic components in all
modern electronics, from computers and fax machines to satellites
and weapons systems.

 Until many restrictions were relaxed last year, the sale of most
such equipment to China had been banned by the multinational
group that regulates the export of critical technologies to com-
munist countries.

 Chinese officials have indicated privately that they do not want
to become dependent for a key technology on Japan, which until
recently had been ahead of the United States in sophisticated
techniques for making semiconductors. The United States has been
steadily improving, however, and now controls 53.4 percent of the
world market for equipment, according to VLSI Research Inc. in
San Jose.

 American experts estimate that China is about five to 10 years
behind the United States and Japan in this technology, but its
economy is growing faster than any other large country.

 "The Chinese really made it clear that they want to work with
U.S. companies as opposed to other nations," said Peter Younger,
general manager of the semiconductor equipment division of Eaton
Corp., in Beverly, Mass. Younger was in Beijing with a trade mis-
sion in May when the Chinese first disclosed their intentions.

 "They don't want to be dependent on Japan for equipment, partic-
ularly if they're going to be in competition with Japan in this
field," said Younger, whose company already sells about $10 mil-
lion in semiconductor technologies to China.

 Jim Morgan, chairman of Applied Materials Inc., of Santa Clara,
Calif., a leading supplier of semiconductor equipment, said that
Chinese high-Chinese officials have indicated privately that they
do not want to become dependent for a key technology on
Japan.<technology industries have made great progress and that
the Chinese are capable of achieving their ambitious goals.

 But Morgan cautioned that if U.S. companies do not deliver
high-quality equipment that meets China's specifications, the
Chinese will turn to Japanese suppliers, regardless of their
preference for U.S. products.

 China has built up a huge foreign exchange reserve from its
booming export industries, easily allowing it to make the pur-
chases it envisions. It enjoys a yearly trade surplus with the
United States of nearly $13 billion. The U.S. exported $6.3 bil-
lion worth of goods to China and imported about $19 billion from
that nation in 1991. The trade surplus is expected to reach near-
ly $17 billion this year.

 Officials of the Semiconductor Equipment and Materials Interna-
tional (SEMI), a trade association based in Mountain View, Cal-
if., said that the new Chinese market for U.S. companies making
computer chip equipment could come to nearly 10 percent of a to-
tal global market of about $10 billion in annual sales for com-
puter chip, or semiconductor, equipment.

 Chinese officials see the computer chip industry as crucial to
their economic modernization program and have informed U.S. exe-
cutives that they intend to use the imported American equipment
mostly for telephones and consumer electronic products, such as
televisions.

 But an analysis produced by SEMI several months ago included a
note of caution. It said that American companies doing business
in China warn that "repatriation of profits can be difficult,
development plans are sometimes postponed to the point of frus-
tration, leaving new equipment stored in inadequate warehouses,
and some intellectual property issues have yet to be resolved."

 The Chinese say their aim is to achieve a dramatic reduction in
the size of the tiny electric circuits inside computer chips,
permitting them to carry out calculations and operations at much
faster speeds.

 Experts say the specific targets that the Chinese officials have
said they hope to reach by the end of the century are extremely
ambitious.

 "Can they do it?" asked Younger. "I wouldn't underestimate
them."

 In a speech here last week, Yu Zhangyu, chief engineer of the
Chinese Ministry of Machinery and Electronics Industry (MMEI),
said that China wants to "catch up to the pace of the world elec-
tronics industry as soon as possible" and that "many Chinese com-
panies are interested in buying your (American) components and
parts to assemble their equipment of all kinds."

If the deals envisaged by Yu are realized, it will open up a new
market for many U.S. companies that have had no presence in Chi-
na.

 China sent three shopping delegations to the United States ear-
lier this month - one delegation from the MMEI, one from indus-
tries near the city of Nanjing, and a third from China Electronic
Corp. (Chinatron). Officials at SEMI said it was too early to
know what the results would be from these early shopping mis-
sions.

02:06 11-18C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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