China to launch new $40 billion state fund to boost chip industry, sources say
China’s decision to launch a new state-backed investment fund for its semiconductor sector reflects the country’s strategic ambition to become a prominent player in the global semiconductor industry. Semiconductors are the bedrock of modern electronics, and their importance spans across numerous industries, including consumer electronics, telecommunications, automotive, and more.
With the increasing demand for these chips driven by technological advancements, China aims to reduce its dependence on foreign-made semiconductors and establish self-reliance in semiconductor manufacturing and innovation.
At the heart of this endeavor is the China Integrated Circuit Industry Investment Fund, commonly known as the “Big Fund.” This initiative was launched in 2014 with the aim of providing financial support to Chinese semiconductor companies.
Now, it is taking a major leap forward by introducing its third fund, setting an ambitious target of raising 300 billion yuan, equivalent to approximately $41 billion. This financial commitment far exceeds the amounts raised by its previous funds in 2014 and 2019, amounting to 138.7 billion yuan and 200 billion yuan, respectively, demonstrating China’s unwavering determination to fast-track the development of its semiconductor industry.
China’s semiconductor ambitions are underscored by the fierce global competition in this sector. Countries like the United States, South Korea, Taiwan, and Japan have traditionally dominated the semiconductor market, thanks to their technological expertise and established industry presence. China’s substantial investment in its semiconductor sector is a strategic response aimed at bridging the technological gap and enhancing its competitiveness on the international stage.
However, achieving technological parity with these well-established players is a complex, long-term endeavor. It necessitates the development of cutting-edge semiconductor manufacturing processes, extensive research and development efforts, and the cultivation of a highly skilled workforce.
Additionally, successful progress may entail fostering collaboration with global semiconductor leaders and investing in education and training programs to cultivate a robust talent pool. China’s decision to launch this significant new fund demonstrates its commitment to this challenging but strategically crucial goal of becoming a formidable force in the semiconductor industry.
Investing in chip manufacturing equipment is a pivotal focus of China’s strategy to bolster its semiconductor industry. The significance of this investment is underlined by several factors, including President Xi Jinping’s consistent emphasis on achieving self-sufficiency in semiconductors. This goal has gained even more urgency due to a series of export control measures imposed by Washington in recent years, driven by concerns that China might leverage advanced chips to enhance its military capabilities.
The United States, in particular, has rolled out comprehensive sanctions packages, with the most notable move occurring in October. These sanctions have had a direct impact on China’s access to advanced chipmaking equipment. By limiting or cutting off this access, the U.S. aimed to restrict China’s ability to develop and produce cutting-edge semiconductor technologies. Furthermore, U.S. allies such as Japan and the Netherlands have followed suit, implementing similar measures that further curtail China’s access to crucial semiconductor manufacturing equipment.
In this context, China’s decision to allocate a substantial portion of its new investment fund to chip manufacturing equipment aligns with its determination to overcome these restrictions and boost its domestic semiconductor capabilities. The development and production of advanced semiconductor chips require state-of-the-art manufacturing equipment, and by investing in this area, China aims to reduce its dependence on foreign technology while accelerating its progress toward self-sufficiency.
By investing in semiconductor manufacturing equipment and pursuing a comprehensive strategy to develop its semiconductor industry, China seeks to position itself as a formidable contender in the global semiconductor market, reduce its reliance on imports, and enhance its national security by securing a reliable domestic supply of critical semiconductor components. This move underscores the importance of semiconductors not only in consumer electronics but also in the broader context of technological innovation and national security.
The establishment of the new investment fund for China’s semiconductor sector has recently received approval from Chinese authorities, according to two anonymous sources with knowledge of the matter. This approval signals the government’s commitment to advancing its semiconductor industry, a critical component of its long-term economic and technological development.
While one source mentioned that China’s finance ministry plans to contribute 60 billion yuan to the fund, the identities of other contributors remain undisclosed. The decision to keep the contributors’ identities confidential likely underscores the sensitivity and strategic importance of the fund’s operations.
Given the confidential nature of these discussions, all sources chose to remain anonymous. The State Council Information Office, which typically handles media inquiries on behalf of the government, as well as the finance ministry and the Ministry of Industry and Information Technology, did not respond immediately to Reuters’ requests for comment. Similarly, the Big Fund, which manages these investments, also did not provide an immediate response to requests for comment.
This development reflects the Chinese government’s intent to strengthen its semiconductor sector through significant financial backing. Semiconductor technology is integral to modern industries, and China’s investment underscores its determination to reduce reliance on foreign technology and establish a competitive domestic semiconductor ecosystem. As China continues to expand its semiconductor capabilities, it aims to enhance its position in the global technology landscape and reduce vulnerabilities in critical supply chains.
The fundraising process for the third fund dedicated to China’s semiconductor sector is expected to span several months, according to information from the first two sources. As of now, it remains unclear when the fund will officially launch or if there will be any further modifications to the plan. The complexity and scale of such funds often entail a meticulous fundraising process, including securing commitments from various contributors and adhering to regulatory procedures, which can extend the timeline.
Notably, the previous two funds managed by the Big Fund received backing from several key entities, including the finance ministry and well-funded state-owned organizations such as China Development Bank Capital, China National Tobacco Corporation, and China Telecom. These contributors have played a pivotal role in financing and supporting China’s semiconductor industry.
Over the years, the Big Fund has directed financial support to significant players in China’s semiconductor landscape. This includes substantial investments in Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Semiconductor, two of China’s largest chip foundries. Additionally, the fund has channeled resources into Yangtze Memory Technologies, a company specializing in flash memory, as well as several smaller semiconductor-related enterprises and funds.
Despite these investments, China’s semiconductor industry has faced challenges in achieving a leading role in the global supply chain, particularly concerning advanced semiconductor technologies. Bridging this gap remains a top priority for China, and the launch of the third fund underscores the country’s determination to strengthen its semiconductor capabilities and reduce dependence on foreign technology, ultimately aiming to enhance its standing in the global technology sector. However, achieving this goal is a complex and multifaceted endeavor that involves not only financial support but also advancements in research, development, and innovation.
The Big Fund is exploring the possibility of engaging at least two institutions to oversee the management and investment of the new fund’s capital, as reported by the three anonymous sources.
It’s worth noting that SINO-IC Capital, which had served as the sole manager for the Big Fund’s initial two funds, has been facing investigations by China’s anti-graft authority since 2021. Despite this ongoing investigation, two of the sources indicated that SINO-IC Capital is expected to continue its role as one of the managers for the third fund. This suggests that, despite the challenges it may be facing, SINO-IC Capital still holds a significant position of trust within the Big Fund’s operations.
As of now, SINO-IC Capital has not provided an immediate response to requests for comment regarding its involvement in the third fund.
Additionally, Chinese officials have reached out to China Aerospace Investment, the investment arm of the state-owned China Aerospace Science and Technology Corporation, to explore the possibility of it also serving as one of the fund managers. This indicates a desire to involve established, reputable entities in managing and investing the capital of the third fund. However, China Aerospace Investment has not responded immediately to requests for comment, leaving the final composition of the fund management team subject to further developments and negotiations.
The involvement of multiple institutions in managing the fund highlights the importance of transparency, oversight, and expertise in handling the substantial capital earmarked for the development of China’s semiconductor industry. These developments also underscore the significance of this initiative to China’s broader economic and technological ambitions on the global stage.
