Chip design, the fastest-growing sector of the country's booming semiconductor industry, still faces challenges such as high costs of intellectual property protection and overseas export license restriction, industrial officials said during Semicon China 2007, which closes Friday.

"The cost of design is escalating and it is a challenge to all fabless companies worldwide," said Jodi Shelton, executive director of FSA, a US-based fabless organization.

A strong and practical IP protection law is also a must for China to boost the integrated circuit design industry, Shelton told Shanghai Daily.

The fabless companies outsource chip manufacturing and focus on design, which represents the highest technology in the industry chain.

The cost of IP will account for 31 percent of the chip design's total costs based on the 65-nanometer technology versus the less competitive 0.18-micron's 12 percent, according to FSA.

Foreign companies control the advanced chip technologies and Chinese firms have to boost investment to catch up with the overseas rivals, said Richard Chang, the chairman and chief executive of Semiconductor Manufacturing International Corp.

The domestic firms have to strengthen innovation to provide high-value products and services to keep in line with the rapid growth of the domestic market, industry officials said.

In 2006, China's integrated circuit design firms generated revenue of 18.62 billion yuan (2.38 billion U.S. dollars), a 49.8 percent growth year on year, beating the IC industry's growth of 43 percent in 2006, said CCID Consulting, a Beijing-based research firm under the Ministry of Information Industry.

Li Ke, a CCID analyst, said that the Chinese firms should partner European and South Korean firms.