China injects $47.5B into chip industry

China is intensifying its efforts to lead in advanced technologies by establishing its largest-ever state investment fund for semiconductors, as detailed by a government-run agency.

Valued at $47.5 billion, this fund comes amid stringent U.S. restrictions on the export of American chips and related technologies, aimed at curbing Beijing’s technological ambitions.

Six major state-owned banks, including ICBC and China Construction Bank, are contributing to this fund, highlighting President Xi Jinping’s commitment to strengthening China’s status as a tech powerhouse.

Under the Made in China 2025 initiative, China aims to become a global leader in industries such as artificial intelligence (AI), 5G wireless, and quantum computing.

This investment fund represents the third phase of the China Integrated Circuit Industry Investment Fund, commonly known as the “Big Fund.” It was officially established in Beijing on Friday, according to the National Enterprise Credit Information Publicity System.

Following the announcement, shares of leading Chinese chipmakers surged. Semiconductor Manufacturing International Corporation (SMIC), the third-largest contract chipmaker globally, saw a 7% increase since Monday. Hua Hong Semiconductor, China’s second-largest chip foundry and a supplier to Huawei, gained 13%.

The first phase of the fund was launched in 2014 with 138.7 billion yuan ($19.2 billion), followed by a second phase in 2019 with 204.1 billion yuan ($28.2 billion). These investments are aimed at bringing China’s semiconductor industry to international standards by 2030, focusing on chip manufacturing, design, equipment, and materials, as stated by the Ministry of Industry and Information Technology during the first phase launch in 2014.

Challenges Ahead?
The “Big Fund” has faced corruption scandals recently. In 2022, China’s anti-corruption watchdog began investigating top figures in state-owned chip companies. Lu Jun, the former CEO of Sino IC Capital, which managed the “Big Fund,” was charged with bribery in March, according to the country’s top prosecutor.

These scandals are not the only hurdles to Xi’s goal of achieving tech self-reliance.

In October 2022, the U.S. introduced broad export controls preventing Chinese companies from purchasing advanced chips and chip-making equipment without a license. The Biden administration has also encouraged allies, including the Netherlands and Japan, to implement similar restrictions.

In response, Beijing imposed export controls on two crucial raw materials essential for global chipmaking last year.

The new semiconductor fund serves both as a defensive measure against Western sanctions and as part of Xi’s longstanding goal to make China a global tech leader.

Last year, China’s Huawei surprised industry experts by launching a new smartphone powered by a 7-nanometer processor made by SMIC.

At the time of the Huawei phone release, analysts were puzzled as to how the company could produce such a chip despite extensive U.S. efforts to restrict China’s access to foreign technology.

In a meeting with Dutch Prime Minister Mark Rutte in March, Xi asserted that “no force can stop China’s scientific and technological development.”

The Netherlands is home to ASML, the only manufacturer of extreme ultraviolet lithography machines needed for advanced semiconductor production. In January, ASML announced that it had been restricted by the Dutch government from shipping some of its lithography machines to China.