Where firms are looking to fill China’s chip talent gap

On March 9, Taiwanese prosecutors raided two local recruiters that allegedly broke the law by recruiting semiconductor workers from the island to work for a Chinese chipmaker. 

The New Taipei Prosecutors Office said the two firms, WiseCore Technology and IC Link, had illegally hired “hundreds of Taiwanese engineers” through a joint venture set up with a Chinese chip design company over the past three years, according to local media reports. A 1992 Taiwanese law forbids Chinese firms from doing business on the island without government approval.

The action by the Taiwanese government is a response to a long-term trend of deep-pocketed Chinese firms coming to the island for semiconductor engineers. 

China’s semiconductor firms are hunting everywhere to fill a talent gap. That includes recruiting graduates, paying over market rates for overseas talent, and buying companies to get their experienced workers.

In 2020, cash flowing into China’s semiconductor firms amounted to RMB 227.6 billion (around $34.8 billion) through the capital market, a 407% increase from the previous year, as we saw last month.

Where did graduates go?

Every year, millions of Chinese young people graduate from universities and join the country’s growing educated workforce. The number of workforce entrants (including BA, MA, and PhD graduates) was 8.4 million and 8.2 million in 2020 and 2019, respectively.

158,000 graduates of all levels majored in microelectronics in 2018, a field that teaches the “design, manufacturing, packaging, and application” of integrated circuits, according to Shanghai University (in Chinese). Of these, only 30,000 graduates joined the semiconductor industry in 2018, representing only 19% of 158,000 microelectronics graduates that year, according to CSIA. In 2019, the ratio dropped to 13%. 

Semiconductor companies are finding it difficult to hire fresh graduates around the world. A 2018 Deloitte report found that “attracting millennials and recent graduates” was the top recruiting challenge for US semiconductor firms.

For more detail, we looked at the graduation report (in Chinese) released by the University of Electronic Science and Technology of China (UESTC), one of the country’s most prestigious universities for semiconductor training.

In 2020, 5,280 graduates of UESTC joined the workforce after finishing programs from undergraduate to doctoral level. Some 1,991 of those graduates studied semiconductors-related majors such as microelectronics; materials science and engineering; and optoelectronic engineering. 15.3% of UESTC’s graduates, or around 808 people, entered the semiconductor industry in 2020, while more than 50% of the university’s students end up working for “information technology and software” companies—think China Mobile or Alibaba—according to the report.

Huawei is one of the top employers of UESTC graduates, according to the report. The company has a chip-designing subsidiary called HiSilicon, but is best known as a manufacturer of telecommunications equipment and consumer gadgets. It’s not clear how Huawei hires were counted for purposes of the semiconductor total mentioned above. 

Other top employers of UESTC students include internet giants Tencent and Meituan, smartphone maker Oppo, and state-owned telecom company China Mobile. Only a few among them are semiconductor-focused firms, such as Chengdu-based Verisilicon Microelectronics, a chip designer; and Shenzhen-based Goodix Technology, a manufacturer of sensor chips.

Can study fill the talent gap?

The government is taking steps to encourage more people to study semiconductor engineering.

In January, China’s Ministry of Education decided to upgrade the “integrated circuit major” into the nation’s “first-level discipline,” meaning institutions teaching the major will receive better funding and more teachers, state-owned news agency Xinhua (in Chinese) reported.

The policy may fix the “bottleneck” problem that restricts the development of China’s semiconductor industry, Xinhua predicted.

The policy is part of China’s broader plan to push for the development of its semiconductor industry laid out in a central government initiative announced (in Chinese) in July 2020. The initiative also pledged to cut taxes for semiconductors educational institutions by up to 30%.

But more graduates won’t help much with a key dimension of the talent gap: experienced engineers.

Around 32.1% of semiconductor companies’ job postings demand three to five years’ experience, while postings that require less than one year’s experience are “on the decline,” according to the CSIA report.

Some recruiters say better training could make fresh graduates more employable. “China’s education used to be more focused on teaching the theories, lacking the training of collaboration and practical skills,” said Chen Lei, a semiconductor consultant at a headhunting agency. “Because the integrated circuit industry requires lots of collaboration and practice in the production environment, schools need to improve and strengthen those areas in the future training of talents.”

But Jodi Shelton, chief executive officer of Global Semiconductor Alliance (GSA), says the talent gap is a “worldwide problem.” “All countries are concerned about the lack of students focused on STEM [Science, technology, engineering, and mathematics] that are necessary to produce the next generation of innovation,” she told TechNode.

“The recent government plans and investment will help China become more competitive, but it will take time to catch up.”

Looking overseas

With limited options at home, Chinese semiconductor firms often turn to overseas markets. Taiwan, which shares a language with mainland China, has long been one of the most popular sources of talent for mainland chip firms. South Korea and the US are also popular destinations.

Taiwan is home to companies like Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker; and smartphone chip designer MediaTek, a major rival to Qualcomm.

Ahead of Taiwan’s crackdown on illegal hiring, Taiwanese DRAM maker Nanya Technology’s president Lee Pei-ing said in 2018 that his company had lost more than 500 engineers over the previous two years to Chinese competitors. He said that some of his engineers were being offered three to five times their current salaries by Chinese firms. Taiwanese engineers are not forbidden to take jobs in China.

In August, Nikkei Asia reported that two Chinese government-backed chip firms had together hired more than 100 veteran engineers and managers from TSMC. One of the firms was the later failed Hongxin Semiconductor Manufacturing Company (HSMC), which also hired the former research and development vice president at TSMC Chiang Shang-Yi as its chief executive.

In addition to headhunting talent from neighbors, Chinese companies have paid top dollar for acquisition and merger (M&A) deals targeting foreign semiconductor firms. 

In June 2020, Chinese contract smartphone maker Wingtech Technology completed its acquisition of Dutch semiconductor firm Nexperia Holding, paying almost the amount of the company’s market cap. The RMB 25.2 billion acquisition is the largest M&A deal in China’s semiconductor industry to date.

Analysts said the acquisition had turned the low-tech manufacturer into a “semiconductor leader” in China overnight. Wingtech said in a filing (in Chinese) to the Shanghai bourse that one of the reasons it wanted to buy Nexperia was that the company needed “high-end semiconductor talent” from overseas. The acquisition more than quadrupled the company’s share price from 2019 to a historical high in June, highlighting the value of semiconductor talent and technology. 

Of the 57 semiconductor M&A deals conducted by Chinese firms between 2015 and 2019, around 86%, or 49 deals, were outbound, or targeting foreign firms. By comparison, the ratio is 56.5% in Japan and 43.5% in Taiwan, according to a report (in Chinese) by Deloitte China.

The competition of talent

The talent gap is a problem worldwide: Global Semiconductor Industry Outlook report by GSA and KPMG ranks talent risk as a top-three industry issue, only behind territorialism and supply chain disruption. 

But for China, it’s especially grating. China is trying to scale up its industry in a hurry to achieve semiconductor independence and overcome US technological sanctions. “The competition between China and the US is essentially the competition of talent,” Zhou Zucheng, a microelectronics professor at the prestigious Tsinghua University, told Chinese media. If China is going to build this industry quickly, it’s going to need a lot more people to run it.