China rapidly expanding semiconductor production capability

China is a rising economic superpower that lacks one key ingredient to acquire their goal of complete self-sufficiency; the all-important processor. China has over 1.3 billion mobile phone users, but imports over 90% of their processors. This adds up to a whopping annual total of $232 billion in imported chips. China consumes over 45% of the worldwide chip production, and the lack of semiconductor technology is a huge strategic gap.

To that end, China has invested an unprecedented $5 billion in the last 18 months on procuring semiconductor-related companies, and that is just the beginning. These investments are largely funded by the Chinese government, and they have pledged to spend up to $163 billion over the next 5 to 10 years to reduce their reliance upon foreign chips. China is moving aggressively, and has plans to boost 2013 semiconductor revenue 40% by the end of next year.

Chip production has many advantages that extend far beyond cellular phone production. The wars of today are increasingly powered by technology, and this reliance is only going to increase in the future. If China became involved in a protracted dispute, and found itself on the unfriendly side of a blockade or sanctions, simply cutting off CPU supply could simultaneously cripple their economy and military. A major thorn in China's side is also the fact that over 25% of their processor supply originates in Taiwan. The continued animosity between the two countries only adds fuel to China's desire to produce their own chips.