• 　China is becoming a Manufacturing Base of World Semiconductor Industry

　From 2001 on, the world semiconductor industry entered a deep valley, with a decrease of 30% in the year. In order to get rid of the morass, many semiconductor enterprises in the world contract fabrication of chips to special chip manufacturers. They are only responsible for design of chips. Chip production bases begin to be transferred to developing countries on a large scale. In such an industry division, China mainland becomes the most attractive region because of its low production cost and huge market.

　In past years the Chinese semiconductor market kept a growth rate of ca. 30%, while the global market was in stagnancy. In 2001 the demand for IC in the Chinese market cost RMB 120 billion, with a consumption of 26.2 billion pieces of IC. The Chinese producers only provided 6.3 billion pieces, with a market share of only 15%. The production fell short of demand severely. As China gradually becomes an important manufacturing base and market of automobiles and IT products in the world, the demand for IC products will continually increase. It is predicted that by 2005 the Chinese IC market will cost RMB 300 billion. Even 10 more production lines are built and put into operation, only 25% of the demand in the Chinese market can be fulfilled.

　With the rapid development of Chinese manufacturing industry and upgrade of consumption structure both at home and abroad, the demand for IC in China will steadily increase. In the aspect of export, such digital products as PC, TV sets, DVD and cell phone will be equipped with chips; in the aspect of domestic consumption, the popularization of such digital products as IT domestic electric appliance, mobile computer, net equipment, engineering control, emulation and medical instrument will greatly stimulate the market of build-in systems. It is predicted that in 4-5 years to come, the market of IT domestic electric appliance in Chinese mainland will increase 5-10 times, with an annual demand for build-in chips costing over RMB 10 billion. In 10-20 years to come, the growth rate of the Chinese market of chips will be 3 times higher than the global market. By 2010 China will become the second largest semiconductor market in the world only next to the United States.

　In view of such a vast marketing prospect and the policy of tax reduction or exemption and other preferential treatments for chip industry executed in China since 2000, many famous companies in the world come to invest in China. In the past 2 years, the total investment for the Chinese IC industry exceeded RMB 30 billion, corresponding to the total amount of investment in the past 40 years. Many famous companies in the world such as Intel, Ultra micro Semiconductor (AMD), National Semiconductor, Hitachi, Fujitsu, Sansung and NEC have set up factories in China.

　According to the history of development of semiconductor industry in the world, a cycle of peak and valley appears every ca. 5 years. Now we are in the early phase of a new peak. Therefore, this is a golden time for development of the Chinese semiconductor industry.

• 　Advantages and Conditions for Construction of Luoyang Semiconductor Industry Garden

　At present, in the surge of development of semiconductor industry in China, such advanced regions as Beijing, Shanghai and Guangdong have made a leading step and laid a foundation for further development. As an important city in Central China, Luoyang takes a very important strategic position in the overall arrangement of national economy and has unique resource advantages and natural conditions.

　Rich underground water resource, abundant power supply and stable geological conditions
　Luoyang is a region rich in water, which is scarce in northern part of China. The Yellow River, the Luo River, the Yi River and the jian River flow in the range of Luoyang. There exist 290 reservoirs, with a total storage capacity of 15.6 billion m3. This region is also rich in high-quality underground water. Luoyang now has a total installed power capacity of 2 million kW, which is expected to reach 6 million kW by 2006. In addition, Xiaolangdi multi-purpose dam project has an installed power capacity of 1.8 million kW. Such high power supply ability as in Luoyang is scarce in China. Shortage of power in China cannot be solved 2 years. Hence, power consumption is strictly restricted in 22 provinces in eastern part of China. Luoyang is obviously advantageous in resource under such conditions. The unique water and power resources in Luoyang are natural conditions rare to other regions in China. Prices of water and power in Luoyang are quite reasonable (price of water is 3/4 or 2/3 lower than other regions in China; price of power is RMB 0.38, about 1/3 to 1/2 of that in Beijing and Shanghai). Abundant water and power supply will certainly be able to meet the requirements in large-scale IC production. Luoyang has a warm temperate continental climate with monsoons, which is characterized by clear four seasons. Geological conditions are stable, with very few flood, drought and earth quake hazards. Luoyang Semiconductor Industry Garden will be situated at the southern side of the Zhou Hill and by the Luo River. This is an ideal site for developing semiconductor industry with beautiful environment and quality air.

　There are a group of semiconductor material production enterprises, rather long industrial chains and good support conditions
　In the aspect of production of multi-crystal silicon, Luoyang Zhonggui Material Co., Ltd has a production capability of over 300 tons of multi-crystal silicon. In the aspect of R & D of silicon materials, Luoyang Single-Crystal Factory is the largest and most advanced silicon material R & D center in central and western part of China. The factory was founded in 1966 and introduced complete sets of production equipment and technology from Japan. It is the first special silicon material producer in China, which has a complete process flow from production of multi-crystal silicon to fabrication of single-crystal silicon chips. It has over 1000 technical personnel and 40000 m2 of clean factory houses. The main products are multi-crystal silicon, single-crystal silicon and organic silicone. The technology takes a leading position in China. In the aspect of production of IC grade polished silicon chips, Luoyang MCL Electronic Material Co., Ltd is the largest and most advanced enterprise in China producing four-inch, five-inch and six-inch IC grade polished silicon chips. American MEMC Company and Chinese Sijia Semiconductor Company jointly invested the company, with a total investment of USD 14 million and a designed annual fabrication capability of a million chips. In the aspect of subsequent matching materials, Luoyang Copper Manufacturing Group Corporation is the largest complex copper manufacturing enterprise in China.

　The company manufactures over 100000 tons of copper material and 50000 tons of electrolytic fine copper. It is a main Chinese exporter of lead and frame material for IC. In the aspect of preparation of high pure gases, Luoyang Liming Chemical Research Institute is a complex research institution directly subordinate to the Ministry of Chemical Industry. It has 470 technical personnel, including an academician of Chinese Academy of Science. The main R & D fields involve new chemical materials, chemical propellants and high pure gases for semiconductor industry. In the aspect of development of encapsulation technique, Luoyang Shenjia Electronic Ceramic Co., Ltd has been working on research, development and application of electronic ceramic products and ceramic encapsulation technique. It can be seen from the above five aspects that Luoyang has source conditions and basic resources for developing semiconductor industry.

　Centralized large industrial enterprises and high-tech power as well as strong radiation ability
　Since 1950's Luoyang has been an important industrial base of China. Luoyang has set up 6 support industries, i. e. mechanical and electric, petrochemical, metallurgy, building material, textile and light industry as well as food, including 34 industrial categories and over 10 largest enterprises in Chinese manufacturing industry. In large-scale technical reformation of these enterprises there will formed special demand for electronic techniques and products. Besides, Luoyang and its surroundings are production bases of large-scale program-controlled exchanger sets, IC card telephones and management systems as well as digital telecom products, such as Luoyang Julong Telecom Equipment Group Co., Ltd and Xi'an Datang Telecom Co., Ltd. Luoyang is also an important center of aeronautical industry in central and western part of China, involving such fields as rocket, satellite, radar, measurement and control as well as instrument. Luoyang has over 100 scientific research institutions, including 14 ministerial units and 18 provincial or municipal units. Luoyang has 120000 scientific and technical personnel of various specialties. There are 1500 scientific and technical personnel in every 10000 employees. The city has strong ability in technical assibilation and innovation and can provide technique-dense industries with high-quality labor resource.

　Complete communication, telecom and public service facilities
Luoyang is located in a transition area from warm temperate zone to subtropical zone, which is characterized by clear four seasons and pleasant climate. The city has neat appearance and beautiful environment and has been named as a national garden city and an excellent tour city. Luoyang is an important communication junction in central part of China. Longhai and Jiaozhi trunk railways cross here. It is an important station in the second Euro-Asian continental bridge (Lianyungang-Rotterdam). Goods can be directly transported to countries and regions in Central Asia, East Europe and West Europe. The city has rather strong transportation ability and good storage facilities. Luoyang also has developed highway communication. No. 310 national highway, No. 207 national highway, Lianhuo express highway and Luojie express highway cross here. By them you can get to surrounding cities conveniently and rapidly. Luoyang Airport is a second grade airport in China. Large Boeing airplanes can take off and land here in all weathers. Airlines from Luoyang to Beijing, Shanghai, Guangzhou, Shenzhen, Xiamen, Dalian, Xi'an, Zhongqing and Chengdu are available. Luoyang Customs provides fast and effective services. Rail-sea or land-air combined transportation can be realized. Luoyang has thriving telecom industry. Telephones are popular in urban residents. The city has complete tour service facilities, including over 20 star-grade hotels. Besides, Luoyang has complete support service activities in finance, insurance, law, counting etc. They have rich experience in foreign business.

　The external environment for developing electronic industry has formed
　Firstly, the Chinese government pays much attention to development of IC industry. The Council of State elucidates some policies encouraging development of software industry and IC industry. Secondly, the Government of Henan Province has constituted a development plan for IT industry in the period of the 10th five-year plan. It suggests the philosophy of promoting development of IT industry in the province by means of development of semiconductor industry. By 2010 the total production value of IT industry in the province is expected to reach RMB 100 billion, accounting for 6% of GDP. Sufficient efforts will be made to support development of semiconductor industry in Luoyang. The IT Industry Office of Henan Province denotes that funds and qualified personnel will be centralized to support the construction of Luoyang Semiconductor Industry Garden. The Governemnt of Luoyang Municipality pays great attention to the construction of Luoyang Semiconductor Industry Garden and regards it as the most important thing for rejuvenating Luoyang. A series of special policies and measures will be considered and defined to enable the semiconductor industry in Luoyang to exert significant effect in promoting economic development in central and western part of China.

　Luoyang High and New Tech Industry Development Zone is a national development zone approved by the Council of State and has the advantages of excellent investment environment, complete basic facilities, normative preferential policy and high service level. It is a window of Luoyang opening to the world and a base for developing high technology. It will provide the construction of Luoyang Semiconductor Industry Garden with powerful support and guaranty.

• 　Basic philosophy and tentative plan for the construction of Luoyang Semiconductor Industry Garden

　Basic philosophy
　On the basis of the status of and guidelines for development of Chinese semiconductor industry as well as practical situations in Henan and Luoyang, the basic philosophy for the construction of Luoyang Semiconductor Industry Garden is: make full use of such advantages as large industrial enterprises, high technology, vast source and market radiation, rely on such unique natural conditions as abundant underground water resource, enough power supply and stable geological situations, enlarge and extend production of existing semiconductor material products, strengthen international cooperation to introduce techniques and funds, develop material enterprises producing silicon material, copper material for leads and frames and electronic glass, gradually develop tech-dense enterprises in the field of IC encapsulation and manufacture; construct Luoyang Semiconductor Industry Garden and make it an important semiconductor material base in central and western part of China or "Silicon Valley in Central China".

　Tentative plan
　Planned area: 10 km2, with 3 km2 in start-up stage.
　Location: Along both banks of the Luo River, in the range of the 3rd and 4th phases industry gardens in Luoyang High and New Tech Industry Development Zone.
　Basic facilities: In start-up stage the total investment will amount to USD 65 million. Such basic facilities as road, water supply and drainage, electric power, telecom, thermal power and gas will be constructed accordingly.

　Contents of construction
　On the principles of unified plan, combination of objectives in near and far future, easy project before difficult ones and stepwise execution, the projects in Luoyang Semiconductor Industry Garden are defined as follows.
　Rely on Luoyang Single-Crystal Co., Ltd and Luoyang MCL Electronic Material Co., Ltd to stabilize and enlarge production of four-inch, five-inch and six-inch IC grade polished silicon chips, speed up execution of eight-inch project through cooperation with foreign investors, meanwhile make efforts to try for cooperation on twelve-inch project.
　Rely on Luoyang Copper Manufacturing Group Corporation to extend existing production of copper material for leads and frames to fine fabrication and develop micrometer grade rolled copper foil product.
Rely on Luoyang Glass Group Corporation to develop lead-free glass for display and PDP product.
　Support Luoyang Shenjia Electronic Ceramic Co., Ltd to develop ceramic encapsulation product.
　Rely on American Sentry Partners Company to introduce from abroad a second-hand complete IC production factory, gradually develop IC product design, encapsulation, testing and fabrication, and finally promote all-round development of Luoyang Semiconductor Industry Garden.

　Objective in near future
　It is planned to build 2-3 factories with investment over RMB a hundred million in Luoyang Semiconductor Industry Garden in 2-5 years to form an annual production value over RMB 10 billion and promote development of associated industries.

• 　Major measures for the construction of Luoyang Semiconductor Industry Garden

　Preferentially carry out a group of key projects to speed up the construction. They will include technical reformation and extension of production of four-inch, five-inch and six-inch polished silicon chips in Luoyang MCL Electronic Material Co., Ltd and an eight-inch IC grade polished silicon chips project newly built in Luoyang Single-Crystal Factory with an annual production of 2 million chips. Construct a production base for semiconductor silicon material on the basis of the above projects and enable Luoyang Semiconductor Industry Garden to start up as soon as possible.

　Give IC enterprises built in Luoyang special preferential treatment and the right for prior development
　Land preference: For IC enterprise with investment over USD 30 billion, the government will provide it with ready land, with a use term of 30 years. In the use term the enterprise will not change the nature of land use, nor transfer nor mortgage the land. IC enterprise can get usufruct of land in the way of remise without any charge. When the usufruct of land is transferred or the nature of land use is changed, the enterprise has to pay for the land remise in accordance with regulation.
　Matching fund and interest allowance: When approved IC project needs a loan in RMB in the course of construction, the municipal government will provide corresponding financing service and give an interest allowance of 1.5 percentage to reduce financing tension and investment risk.
　For software and/or IC enterprise in conformance to provisions of Document No. 18 of the Council of State, a preferential policy of " no taxation for 3 years and half taxation for 5 years" will be carried out from the year when the enterprise gets profit.

　Set up a risk investment fund for semiconductor industry. The start-up fund will be raised by the provincial and municipal finance. Private capital and financing organizations will be absorbed to take part in it. The fund will be operated in a marketing way and support key projects in the ways of capital investment, loan, interest allowance and guaranty.

　Absorb qualified personnel to speed up construction of R & D organizations. Speed up personnel training. Set up relevant specialties in Henan Information Engineering Institute and Henan University of Science and Technology to strengthen training of local personnel. Encourage persons from abroad and domestic specialists to come to Luoyang to initiate business. Attract relevant R & D organizations to set up local research centers in Luoyang.

　Further improve investment environment and enhance quality and level in foreign business.
　In view of characteristics of production in semiconductor industry, coordinate with Luoyang Customs to set up a bonded store in Luoyang High and New Tech Industry Development Zone to provide foreign-owned semiconductor enterprises with fast customs service in import and export of raw materials and products.
　Speed up the construction of Luoyang Semiconductor Industry Garden. Construct western part of encircling express highway of Luoyang and water project at upper stream of the Luo River to create a nice and pleasant investment environment and attract overseas businessmen to invest in Luoyang Semiconductor Industry Garden.
　Normalize services in accordance with international common practice and raise speed and efficiency in examination and approval of foreign investment.
　Improve rules and regulations in accordance with WTO requirements. Administer in accordance with laws to protect legal rights and interests of investors.