China has established its largest semiconductor investment fund yet, aiming to bolster its domestic chip industry amidst growing international tensions, particularly with the United States. The initiative marks China’s most significant effort to achieve technological self-sufficiency in response to American restrictions on its technological growth.
The third phase of the National Integrated Circuit Industry Investment Fund, known as Big Fund III, has successfully gathered a substantial sum of 344 billion yuan (approximately $47.5 billion). This investment comes from various sources including the central government, state-owned banks, and enterprises. Prominent contributors include the Industrial & Commercial Bank of China Ltd. The fund’s establishment was officially recorded on May 24, according to data from Tianyancha, a platform that compiles official company registration information.
The involvement of heavyweight financial backers underscores the strategic importance of this initiative. The fund’s largest shareholder is the Ministry of Finance, with significant contributions also coming from investment firms owned by local governments in Shenzhen and Beijing. The proactive role of these local governments, especially Shenzhen’s support for chipmaking facilities in Guangdong province, highlights a focused effort to support major companies like Huawei Technologies Co., which has suffered under US sanctions.
Following the announcement of Big Fund III, shares of major Chinese semiconductor companies saw a notable increase. Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker, experienced a surge of up to 8.1% in Hong Kong. Hua Hong Semiconductor Ltd., another key player in the industry, climbed more than 10%.
Key Financial Contributors to Big Fund III
| Contributor | Contribution Amount (in billion yuan) | Percentage of Total Fund |
|---|---|---|
| Ministry of Finance | 120 | 35% |
| Industrial & Commercial Bank of China | 50 | 14.5% |
| Other state-owned banks and enterprises | 174 | 50.5% |
Big Fund III represents a continuation of China’s assertive policy to enhance its industrial capabilities, which includes the ambitious Made in China 2025 program. This program outlines developmental goals across various sectors, including biotechnology, electric vehicles, and semiconductors. Since its introduction in 2015, the program has positioned China as a staunch supporter of its semiconductor sector, with substantial state capital funneled into domestic companies like SMIC.
The national chip fund was initially launched about a decade ago with an investable capital of approximately 100 billion yuan. Under Xi Jinping’s leadership, the fund and other initiatives have aimed to overhaul China’s manufacturing industry, focusing on advanced technologies such as robotics and sophisticated chipmaking.
The global race for semiconductor supremacy is not limited to China. The US and the European Union have invested nearly $81 billion in developing next-generation semiconductor technologies. The Biden administration’s 2022 Chips and Science Act is a part of this competition, providing $39 billion in grants to chipmakers and an additional $75 billion in loans and guarantees.
Despite these efforts, challenges persist. The third installment of China’s semiconductor fund comes at a time when the US has significantly limited China’s access to advanced chips and chipmaking equipment. The Biden administration has encouraged allies like the Netherlands, Germany, South Korea, and Japan to enforce stricter export controls against China.
Recent Developments in the Semiconductor Industry
- Big Fund III Launched: New phase with 344 billion yuan aimed at bolstering domestic chip production.
- Market Response: Significant stock price increases for SMIC and Hua Hong Semiconductor post-announcement.
- US-China Tensions: US imposes restrictions; China intensifies focus on self-sufficiency in chip manufacturing.
- Global Investments: Comparison of China’s investments with US and EU efforts to dominate the semiconductor industry.
China’s strategic move to enhance its semiconductor capabilities through Big Fund III reflects its determination to navigate and counteract the technological constraints imposed by the US. As global tensions over technological dominance intensify, the fund is poised to play a crucial role in shaping the future of China’s semiconductor industry, providing critical support for companies striving for innovation in an increasingly competitive market.
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