China's leading chip making firm will soon be ready to introduced new advanced production technologies, executives say. While loss-making Semiconductor Manufacturing International Corp (SMIC) still lags behind the cutting edge of chip-making technology, the Chinese firm appears to be gradually closing the gap.

"Our Shanghai 12-inch fab already started a pilot testing run on June 30, and we expect we will start on pilot production activities in Q4 this year," Richard Chang, SMIC's CEO and president, told analysts last week. SMIC relied initially on production lines that can only make chips on 8-inch diameter silicon wafers, rather than the more profitable 12-inch wafers that are used by leading chip manufacturers outside China.

As well as increasing the size of wafers from which chips are cut, SMIC is also reducing the size of the chips themselves, to further boost output and make more advanced chips. Yields from early test runs of 65 nanometre production have already reached 80 per cent, said Chang. The yield figure indicates the percentage of properly-functioning chips produced by the test production line. The company expects to start 65-nanometre pilot production by the end of the year.

The race to catch up with leading chip makers in the US, Europe, Japan, Korea and Taiwan has made it hard for SMIC to show a profit recently, despite a strong market for chips from China's vast electronics manufacturing industry.

Chang also gave analysts his company's predictions for the strength of demand from the main sectors of the electronics manufacturing industry.

"Our observation is the consumer electronics market will be the strongest in the third quarter. Telecoms will be second. And the PC [market] will gain some momentum compared to the second quarter," he said