5th September 2023,Mumbai: China is taking significant steps to bolster its semiconductor industry, with the launch of a new state-backed investment fund aimed at raising $40 billion for the sector. This move underscores China’s determination to achieve self-sufficiency in semiconductor manufacturing, especially in light of recent export control measures imposed by the U.S. and its allies. The fund, part of the China Integrated Circuit Industry Investment Fund (Big Fund), is set to become the largest of its kind, signaling a substantial commitment to the development of the Chinese semiconductor sector.
The Quest for Self-Sufficiency in Semiconductors
President Xi Jinping has long emphasized the importance of China achieving self-sufficiency in semiconductors. This goal has gained even greater urgency as the United States implemented a series of export control measures over the past few years, citing concerns about China’s potential military applications for advanced chips. The October rollout of sanctions severely restricted China’s access to advanced chipmaking equipment, with U.S. allies like Japan and the Netherlands following suit. This heightened pressure has driven China to redouble its efforts to secure a stable semiconductor supply chain.
Unprecedented Funding Target
The new semiconductor investment fund, with a target of 300 billion yuan (approximately $41 billion), dwarfs its predecessors in 2014 and 2019, which raised 138.7 billion yuan and 200 billion yuan, respectively. The primary focus of this substantial investment will be on acquiring state-of-the-art equipment for chip manufacturing. The magnitude of this fund reflects China’s determination to invest significantly in semiconductor technology to catch up with global rivals.
Government Approval and Key Contributors
Chinese authorities greenlit the new fund in recent months, highlighting the government’s support for the semiconductor industry. The Ministry of Finance is planning to contribute 60 billion yuan to the fund, although other contributors remain undisclosed. Secrecy surrounds the fund’s discussions and planning, with all sources choosing to remain anonymous due to the confidential nature of the matter. Neither the State Council Information Office nor the Ministry of Industry and Information Technology responded to requests for comment, underscoring the sensitivity of the issue.
Historical Investments and Ongoing Challenges
Over the years, the Big Fund has channeled financing into several key players in China’s semiconductor landscape, including Semiconductor Manufacturing International Corporation, Hua Hong Semiconductor, and Yangtze Memory Technologies. Despite these investments, China’s chip industry has struggled to assert itself on the global stage, particularly in the production of advanced chips. The new fund aims to address these challenges and strengthen China’s position in the semiconductor supply chain.
Selecting Investment Managers
To manage the substantial capital of the new fund, the Big Fund is considering hiring at least two institutions. While some officials associated with SINO-IC Capital, the sole manager for the Big Fund’s previous two funds, have been under investigation for alleged corruption since 2021, it is expected that SINO-IC Capital will continue to play a role in managing the third fund. The Big Fund has also reached out to China Aerospace Investment, the investment arm of China Aerospace Science and Technology Corporation, as a potential manager. The final selection of investment managers will be crucial to the fund’s success and the future of China’s semiconductor industry.
China’s ambitious move to launch a $40 billion semiconductor investment fund underscores its determination to achieve self-sufficiency in this critical technology sector. With mounting global pressure and increasing scrutiny on its semiconductor ambitions, China is committed to making significant strides in chip manufacturing. The success of this fund will not only have a substantial impact on China’s semiconductor industry but also on its position in the global tech landscape.
-by Kashvi Gala