China has initiated its third state-backed investment fund aimed at bolstering its semiconductor industry. According to Reuters, the new fund, with a registered capital of 344 billion yuan ($47.5 billion), was officially established on May 24, according to a filing with the Beijing Municipal Administration for Market Regulation.
Background and Context
The establishment of this fund underscores President Xi Jinping's ambition to achieve self-reliance in semiconductor technology. This drive has gained urgency following a series of U.S. export control measures intended to curb China's access to advanced chips, citing national security concerns.
Following the announcement, Chinese chip shares experienced a notable uptick. The CES CN Semiconductor Index surged over 3%, marking its most significant one-day gain in more than a month. The fund, known as the “Big Fund,” is the largest of its kind, surpassing the first and second phases established in 2014 and 2019, respectively.
Key Stakeholders and Investments
China's Ministry of Finance holds the largest share in the fund, contributing 60 billion yuan, which accounts for 17% of the total capital. China Development Bank Capital follows with a 10.5% stake. Additionally, 17 other entities, including five major Chinese banks, have invested in the fund, each contributing around 6% of the total capital.
The third phase of the Big Fund will prioritize investments in chip manufacturing equipment. This focus aligns with China's broader strategy to elevate its semiconductor industry to international standards by 2030. The Ministry of Industry and Information Technology outlined these goals when the first phase was launched in 2014.
Historical Context and Challenges
The Big Fund has previously provided financing to major Chinese chip foundries such as Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Semiconductor, as well as to Yangtze Memory Technologies and several smaller companies. However, the fund has faced challenges, including corruption scandals. In 2022, China's anti-graft watchdog launched an investigation into the semiconductor industry, leading to the indictment of Lu Jun, the former chief executive of Sino IC Capital, on bribery charges.
The U.S. has intensified its export controls, prohibiting Chinese companies from purchasing advanced chips and chip-making equipment without a license. This move has been part of a broader strategy to limit China's technological advancements. In response, Beijing imposed export controls on two strategic raw materials essential for global chipmaking.
Technological Developments and Future Prospects
Despite these challenges, Chinese companies have made notable advancements. Last year, Huawei launched a new smartphone powered by a 7-nanometer processor manufactured by SMIC, surprising industry experts given the extensive U.S. efforts to restrict China's access to foreign technology. Amid Huawei's success, Nvidia last week cut the prices of its AI processors in China.
In a meeting with Dutch Prime Minister Mark Rutte, Xi Jinping emphasized that no external force could hinder China's scientific and technological progress. This statement came amid restrictions imposed by the Dutch government on ASML, the world's only manufacturer of extreme ultraviolet lithography machines necessary for advanced semiconductor production.
