China plans to invest more than $100 billion in the semiconductor sector to boost its share of the global market to more than 50 per cent by the end of the decade.

Bain & Company estimates that China will account for nearly 55 per cent of the world’s memory, logic and analog chips by 2020, up from about 15 per cent currently. A few years ago it had a 10 per cent share.

Semiconductors still represent the biggest gap in the country’s trade deficit – ahead of even oil – suggesting the country is a long way from closing the widening gap between supply and demand.

A report from Bain – ‘China Chases Chip Leadership’ – said the country’s plans have “left semiconductor executives from even the world’s most successful and innovative firms actively considering how to both capitalise on and guard against China’s growing ambitions”.

However, it noted that questions remain about whether the country is chasing false shadows or if it can succeed in capturing the market.

“China is making a run at capturing the semiconductor market globally by producing more of the microprocessors and memory chips,” said Kevin Meehan, who leads Bain’s technology practice in Asia Pacific and co-authored the report. “But global market share is not something that can be reliably captured through deep pockets and long patience. To close the gap, China will need to work in tandem with established international players.”

He noted that market requirements such as foundational IP and ongoing innovation make entry difficult even for the most well-funded challengers, and incumbents have few incentives for sharing their core IP with potential competitors from China or elsewhere.

Such high barriers to entry suggest that in most cases China is likely to partner with existing firms – a trend reflected in the country’s increased level of semiconductor M&A activity. Bain’s analysis finds that last year, deal value increased to nearly $10 billion, but the market has yet to reach the most advanced levels of technology.

Chinese chip firms and research institutes have forged numerous partnerships with US-based firms. Qualcomm, which has announced a number of initiatives to expand in China, in January teamed up with China’s largest semiconductor foundry to establish a joint-venture company. The venture – SMIC Advanced Technology Research & Development (Shanghai) – aims to help China’s microchip leader Semiconductor Manufacturing International Corp (SMIC) develop the next-generation of advanced integrated circuits.

Two years ago Intel invested an estimated $1.5 billion for a 20 per cent stake in Tsinghua Unigroup, which controls Chinese mobile silicon players Spreadtrum Communications and RDA Microelectronics.