chinacrafts

Incorporating microelectronic and computer technologies, IC cards (also known as smart cards) are widely used in financial services, transportation, medical treatment and identity verification, significantly improving the IT application degree of people’s living and work.

The IC card market in China has been nurtured alone with the development of the Golden Card Project. Through more than decade of development, the market has achieved a fairly large scale. In 2005, thanks to the all-round launching of second-generation ID cards, China issued 680 million IC cards, an increase of 19.1% from 2004.

Generally speaking, the application markets of IC cards are divided into two categories including telecommunications and non-telecommunications. In terms of applications, telecommunications still holds the largest number of IC cards in China. As the mobile communications developing rapidly, the large mobile phone user base contributed to the fast growth of mobile phone IC cards. In 2005, over 300 million mobile phone cards were issued that accounts for nearly half of the market share, demonstrating an immense scale. As mobile phones are increasingly penetrating in recent years, the user changes among different promotional packages have become the major demands for mobile phone cards.

As for public phone cards, China Telecom issued the first IC phone cards for nationwide use in Dec. 1995, and by the end of 2005 the cumulative issue of public phone cards reached over 800 million. This is one of the segments that have the longest history of the card application. As people started to enjoy more convenient communication services, IC card phones fell out of fashion and the release was declining from year to year with the increase of various communication means in recent years. The reasons are manifold: popularity of cell phone stroke a heavy blow on the IC card phone; second, home fixed-lines and the promotion of the “Little Smart Phones” (PHS) grabbed part of the market of IC phone cards; and third, students who are major consumers of public phone cards increasingly tend to communicate via 201 phone cards, public phone booths and online chats.

Because of the too huge market base number and fierce competition within the industry, telecommunication IC cards are not performing as well as they used to a few years ago. Moreover, under the push of a few government-initiated projects, non-telecom IC cards such as second-generation ID cards, all-in-one transportation cards, social security cards have attracted great attentions from major vendors who presented a high profile to enter. For example, Gemplus Company took the lead in announcing their plan to provide highly secure EMV credit cards for Industrial and Commercial Bank of China (ICBC) at the end of 2005. Other non-telecom markets like financial services and public transportation are also on the increase. In 2005, non-telecom IC cards enjoyed a market share of over 30%, with the second-generation ID cards undoubtedly becoming a leader in the segment.

Since the first launching on March 29, 2004, second-generation ID card had been issued over 100 million by the end of 2005. The promotion of second-generation ID cards was in line with the IT application construction of the country. In 2005, these ID cards were distributed nationwide and grew faster in such cities as Beijing and Shanghai where pilot launches had been conducted.

In terms of social security cards, over 50 million had been issued by the end of 2005. They are mainly used for labor security services such as employment, labor contract management, income management, professional qualifications, pension, unemployment and medical insurance as well as fertility.

In terms of transportation, contactless technologies made it possible to utilize IC card technologies. The preliminary launch of contact smart cards in several cities did not turn out to be satisfactory. At the end of 1996, contactless cards were applied to the public transportation billing system in Shenzhen, which has been performing well until the present day. At present, hundreds of cities across China have adopted contactless IC cards as paying tools for public transportation. Such cards accounted for 2.8% of the total market share in 2005. As projects like the all-in-one transportation cards penetrating into more cities, their potential for development is very promising.

Now that the application markets for IC cards have been discussed, related industries will be covered in the following:

IC card products in China were relatively limited at early stage. Most parts including chips, modules, card base and instrument are imported. As the cards becoming popular in all walks of life, related industries started to develop. A whole IC card industrial chain came into being with more and more vendors getting involved in the industry, ranging from chip design, development and production, packaging of chip modules, large-scale production of different types of cards, R&D of read-and-write instruments, ATM and POS and supply of companion parts and materials to development of COS and application software, system integration and technical support. It was through stages of technical improvement and market development that Chinese IC card vendors could have a stature to compete with internationally known companies today.

In chips sector, generally speaking, foreign brands like NXP, ST, Infineon, Samsung, Atmel and Renesas maintain conspicuous advantages. However, domestic enterprises have made breakthroughs in some areas through hard work. In terms of telecommunications, Datang produces sufficient chips for its own mobile communication cards while its public telephone card chips stand for around 60% of the market share. Out of national security, chip supplies for second-generation ID cards are undertook by 4 enterprises selected through tender, namely Datang Microelectronics Technology Co., LTD, CEC Huada Electronic Design Co., Ltd., Shanghai Huahong and Tsinghua Tongfang Microelectronics Company. In addition, Chips of Huada and Huahong are also adopted for social security and electronic payment. As the Chinese IC industry continues to develop, homemade chips with independent R&D are expected to be increasingly applied to various IC card sectors.

In card sector, foreign funded enterprises and joint ventures mainly focus on middle- and high-end applications such as telecommunications, financial payment and security, while domestic enterprises open markets with their own unique strengths. Leveraging its strong R&D strength, Datang has built its own complete industrial chain ranging from chip design, module package to card package, and has been among the top 3 suppliers; With its strong production capability, Eastcompeace is high on the agenda of carriers who intend to procure chips; Watchdata has been committed to providing personalized security services and possessed its own intellectual property of COS system.

Viewing the development of the past years, telecommunication industry has entered a stable development stage. Card vendors have been gradually transferring their focuses onto the non-telecommunication market, providing a perfect opportunity for Chinese IC card vendors to avoid mature markets, seek new business opportunities and quickly snatch shares of emerging markets. With a market value of nearly 1 billion Yuan, second-generation ID card industry is the largest market second to the mobile telecommunication cards in the past several years. Participants involved in the industry are domestic enterprises. Vendors like Eastcompeace, Datang Microelectronics, Tianjin Global Magnetic Card and Aerospace Golden Card will all benefit from this market. In addition, industries such as transportation, campus, social security, tax regulation and DTV billing will become hotspots for IC card applications. Leading non-telecommunication IC card manufacturers include Giesecke & Devrient, Gemplus, Watchdata, Shenzhen Decheng, Wuhan Tianyu, Tianjin Global Magnetic Card, Jiangsu Hengbao and Shenzhen Einolda. As the market grows bigger, competition in the non-telecommunications will be more intense.