China $47.5 Billion Investment Set To Boost Chip Development

China is intensifying its efforts to establish the largest-ever semiconductor state investment fund as part of its strategy to dominate future sophisticated technologies. The $47.5 billion fund is being established as the US places extensive export restrictions on American semiconductors and chip technology to stifle Beijing’s aspirations.

The fund, which has investments from six of the biggest state-owned banks in the nation, including China Construction Bank and ICBC, highlights efforts made by Chinese President Xi Jinping to strengthen China’s standing as a tech powerhouse.

Beijing has reached a goal for China to become a global leader in several areas, including artificial intelligence (AI), 5G wireless, and quantum computing, through its Made in China 2025 strategy. The third phase of the China Integrated Circuit Industry Investment Fund is the newest investment vehicle. The National Enterprise Credit Information Publicity System states that on Friday, the so-called “Big Fund” was formally established in Beijing.

Following the news, shares of leading Chinese chipmakers have surged. The third-biggest contract chip manufacturer in the world, Semiconductor Manufacturing International Corporation (SMIC), has increased 7% since Monday. The second-biggest chip foundry in China, Hua Hong Semiconductor, which supplies Huawei, has increased by 13%.

The fund’s initial phase was established in 2014 with 138.7 billion yuan ($19.2 billion). Five years later, the second phase was founded, registering a capital of 204.1 billion yuan ($28.2 billion). The Ministry of Industry and Information Technology stated during the first phase’s 2014 announcement that the investments will largely fund chip design, manufacture, equipment, and materials to bring the nation’s semiconductor industry up to international standards by 2030.

In recent years “Big Fund” has witnessed several corrupt practices.  China’s anti-graft watchdog began a crackdown on the semiconductor business in 2022 and was looking into some of the top executives in China’s state-owned chip giants. The nation’s top prosecutor said in a statement that Lu Jun, the former CEO of Sino IC Capital, which oversaw the “Big Fund,” was the subject of an investigation and an indictment on bribery allegations in March. There are other obstacles than scandals that might seriously jeopardize Xi’s efforts to bring China up to speed on the digital front.

A comprehensive set of export restrictions was released by the US in October 2022, prohibiting Chinese companies from purchasing advanced chips and chip-making equipment without a license. Additionally, the Biden administration has put pressure on Japan and the Netherlands, two of its allies, to implement their limits.

Beijing retaliated last year by placing export restrictions on two vital raw materials that are essential to the world’s chip manufacturing sector. The new chip fund is a component of Xi’s long-term goal to establish China as a worldwide technological leader, in addition to being a defensive measure against Western sanctions.

When China’s Huawei unveiled a new smartphone last year that included a SMIC 7-nanometer chip, industry experts were taken aback. Analysts were puzzled at the time of the Huawei phone launch as to how the company would have the technology to produce such a chip in light of the US government’s extensive attempts to limit China’s access to foreign technology.

“No force can stop China’s scientific and technological development,” Xi declared in a meeting with Dutch Prime Minister Mark Rutte in March. The only company in the world producing the extreme ultraviolet lithography equipment required to produce cutting-edge semiconductors is ASML, located in the Netherlands. The company announced in January that it was not allowed to send certain of its lithography machines to China by the Dutch authorities.