Steal the enemy's base at the start and build a technological empire.

Chapter 373 Recommendations for the Electronics Industry

After about a minute, Minister Sun spoke up: "What you just mentioned—chips, operating systems, industrial software—are all tough nuts to crack. Others avoid them, but you're charging right into them. Why?"

Ling Yun looked at the document on the coffee table, its edges curled up, and said, "Because I'm in this industry, if I don't take the plunge, others will. There's still time to try now. If you wait a few years, it'll be too late."

Minister Sun looked at him without saying a word. Ling Jun, who hadn't spoken until now, stood up, went to the kitchen, and fetched a freshly boiled kettle of water to refill Minister Sun's cup. The hot water floated to the surface, then sank back down. Ling Jun sat back down and said, "This kid's always been like this; once he's made up his mind, nothing can change it."

Minister Sun said, "It's good that you're sure, but I'm afraid you're not." He turned to look at Ling Yun and asked, "Your document also mentioned that policies should be formulated for different sectors of the electronics industry. Some should be protected, some should be deregulated, and some should be supported. Could you elaborate?"

Ling Yun said, "I've divided it into several categories. The first category is defense and military industry, which must be protected. Radar, communications, navigation, electronic countermeasures—these things cannot be imported. The United States, Europe, and Russia—none of them will sell us their most advanced equipment. This part goes without saying; we'll spare no expense. The Gulf War showed us information warfare and electronic warfare, and in the future, it will evolve into intelligent warfare and unmanned warfare."

Minister Sun interrupted Ling Yun's speech, saying, "We don't need to talk about this. The comrades from the Commission of Science, Technology and Industry for National Defense will talk to you later. Vice Director Li, who chaired the last meeting, and Director Wang from our department specifically mentioned you, saying that you shouldn't speak in public and that related issues should be discussed in a closed-door meeting. This time, I asked your uncle to talk to you privately, just to cut in line, so you won't be dragged to a closed-door meeting. I estimate it might be a month or two before you get to see him."

Ling Yun was somewhat surprised and scratched his head. "Then let's talk about the second type of semiconductor industry. This industry needs key support; the government needs to provide policies and funding. Design can rely on the market, but manufacturing can't. It requires large investments, has a long cycle, and high risks. Private enterprises dare not invest, nor can they afford it. The supply chain is too long, so the government needs to take the lead in building several production lines, even if the technology is one or two generations behind, to build up the capacity first. With capacity, design companies can have places to fabricate wafers. With wafer fabrication, there can be iteration, and with iteration, there can be progress. TSMC and UMC in Taiwan, and Samsung in South Korea, all started this way."

"The third category is consumer electronics. This industry needs to be empowered by the market. The WTO's entry rules can be completely liberalized. Televisions, DVDs, mobile phones, and computers—these products have large markets and fierce competition, so companies will fight for their own success. Changhong, TCL, Konka, Huawei, and ZTE all emerged from the market, not through protection. Joining the WTO and the entry of foreign brands will be both pressure and motivation for them. Those who can't compete will be eliminated or acquired, while those who succeed will be able to go global."

"The fourth category is basic components. This requires government support and policy assistance, but not direct financial investment. Resistors, capacitors, connectors, and PCBs may seem insignificant, but they are fundamental. Without these components, no complete machine can be made. Currently, there are too many small factories in China with low technical levels and unstable quality. Consolidation and upgrading are needed. The government can introduce policies to encourage mergers and acquisitions and technological transformation, thereby increasing industry concentration and raising the technical level. These industries do not require large-scale investment and are suitable for private enterprises. Competition in this market is fierce, requiring cost control and innovation. With government support, our industry in this area will eventually squeeze out companies from other countries around the world because we have a large number of well-educated workers."

"The fifth category is technical standards, which requires the government to step in and fight for. We suffered a great loss with the DVD standard. We developed the third-generation mobile communication standard, TD-SCDMA, ourselves, and we must resolutely promote it. The domestic market is so large; if foreign companies want to enter the market using our standards, they must abide by our rules. This is not trade protectionism; it's the right to set the rules. Whoever sets the standards has the final say."

Minister Sun listened and nodded. He picked up the materials on the coffee table, turned to a page, pointed to a passage, and read it aloud: "In the next ten years, China's electronics industry will face three turning points. The first turning point is the influx of foreign capital after joining the WTO, which will put domestic companies to the test of survival. The second turning point is the transition of mobile communications from 2G to 3G, which presents an opportunity for China to leapfrog ahead in standards. The third turning point is the shift of consumer electronics from analog to digital; the competition over standards in areas such as digital television, digital audio, and digital storage will determine the industrial landscape for the next twenty years."

He finished reading, put down the materials, and looked at Ling Yun. "How did you determine these three turning points?"

Ling Yun thought for a moment and said, "First, everyone knows about the WTO, so I don't need to elaborate. Second, regarding mobile communications, 2G was Europe's GSM and America's CDMA, which we missed. For 3G, we have our own standard, TD-SCDMA. Although technically it's not as mature as Europe's WCDMA, this is our first opportunity to participate in international standard setting. If we don't seize this opportunity, we'll still be following behind others in 4G and 5G. Third, regarding digital television, the US, Europe, and Japan all have their own standards, but we don't. If we don't promote our own standard, every television will have to pay patent fees in the future, just like DVDs."

Minister Sun said, "Your judgments differ from many others. Most people think that joining the WTO is like the wolf coming, and the priority is to survive. You see it as an opportunity."

Ling Yun said, "It's an opportunity, but also a test. If we can't overcome it, it's like crying wolf. If we can, the wolf has been tamed. The key is how we deal with it."

Minister Sun pointed at Ling Yun and said, "You've got quite a lot on your mind." He paused for a moment, then continued, "In your report, you also included suggestions on industrial policies. You said that the government's support for the electronics industry shouldn't be indiscriminate, but rather concentrated on a few key initiatives. Explain that in detail."

Ling Yun said, "Three things. First, build an independent integrated circuit production line. We don't aim for the most advanced, but for complete self-sufficiency. We can buy second-hand equipment and import materials, but we must master the processes, procedures, and management ourselves. This line doesn't pursue profits; it focuses on technological accumulation and talent cultivation. Second, develop an independent operating system. The Xingchen system already has a foundation; the code is open-source, and a community has been established. The government can organize domestic research institutions, universities, and enterprises to conduct secondary development based on the Xingchen system. It can be used in government systems, education systems, and military systems. The more people use it, the more the ecosystem will be built. Third, develop an independent industrial software platform. We don't aim for perfection all at once; we'll start with one field, such as aerospace or automotive design. We'll concentrate the nation's resources to thoroughly develop and refine the software in this one field before expanding to other fields."