What’s China’s $47.5 Billion Chip Industry Gamble Really About?

In the next step forward for the technological race between world superpowers, China has secured billions of dollars for its semiconductor industry.

A Push for Future Technologies

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China has now launched a national chip fund worth $47.5 billion, in a bid to boost its semiconductor industry and push innovation in future technologies.

Third Round of Funding

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The fund is the third round of its kind and includes investment from some of the largest state-owned banks in China, including ICBC and China Construction Bank.

The ‘Big Fund’

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It is part of the National Integrated Circuit Industry Investment Fund, also known as the ‘Big Fund’ which includes investments from 19 state-owned investors, including six major banks, and is managed by the Ministry of Finance.

Made in China 2025

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China hopes to become a global leader in leading industries like quantum computing, artificial intelligence, electric vehicles, and more, as outlined in the ‘Made in China 2025’ 10-year plan to become more self-sufficient and less reliant on the US.

Race Against the USA

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The nearly 50-million dollar fund has been set up as the US continues to impose more restrictions on exports to China, particularly the export of chips and chip technology.

Sparking US Fears

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Leader Xi Jinping is making an aggressive push to become a tech superpower, raising alarms in the US that their advancements could not only push them ahead in future technologies but could also be used in a military context.

Largest Funding Round Ever

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$47.5 billion is so far the largest amount that the Chinese Communist Party has raised to support its strained semiconductor industry. The details were shared this week via a filing from a government-run companies registry.

10 Years of Investment

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The first phase of funding was established in 2014 and raised over $19 billion in investments. The third phase, in 2019, raised the bar to $28 billion. 

Ministry of Finance 

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China’s Ministry of Finance is the largest individual shareholder in this latest fund, according to Chinese information database company Tianyancha, with a stake of 17%.

Six Chinese Banks Involved

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China’s six biggest banks hold a combined majority 33% stake. China Development Bank Capital has the second-largest individual share and the largest stake of all six banks, at 10.5%.

Shares Jump

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Markets are already responding to the news, with the foremost chipmakers in China seeing a spike in share value. 

SMIC Rose by 7%

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Semiconductor Manufacturing International Corporation (SMIC) gained 7% in share value since the announcement, for example. It is the third-largest chipmaker in the world.

Hua Hong Semiconductor

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Hua Hong Semiconductor, a chip foundry that supplies Huawei, China’s largest digital communications technology corporation, saw a major 13% jump.

Catching Up by 2030

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The government aims to use the funding to bring the Chinese semiconductor industry up to international standards by 2030, with a focus on chip design, materials, and manufacturing. 

Export Controls from the US

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Still, in spite of the staggering investment, there are still a series of roadblocks ahead for China’s semiconductor development. Most notable are the series of export controls enacted by the Biden administration in 2022.

Licensing Requirements

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These measures included requiring Chinese companies to be licensed before they could purchase advanced chips and chip-making equipment, and laws around US nationals working for chip-makers in China.

Chopping the Rungs Away

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Industry experts called the export measures a way for the US to “chop the rungs away” as China aims to climb the ladder of future technologies. “The US moves are a major threat to China’s technological ambitions,” said Mark Williams and Zichun Huang in a 2022 research report Capital Economics.

Restricting Chinese Innovation

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“Chinese firms will lose access not only to advanced chips, but to technology and inputs that might over time have allowed domestic chipmakers to climb the ladder and compete at the cutting edge,” they added.

Corruption and Bribery

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Bribery and corruption scandals have also rocked the Big Fund in recent years, including a government crackdown on the semiconductor industry, The investigation led to Lu Jun, the manager of the fund, being indicted on bribery charges.

“No Force Can Stop China”

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Still, Xi Jinping has remained steadfast concerning China’s technological progress. While meeting in March with Dutch Prime Minister Mark Rutte, who has placed prohibitions on shipping Dutch lithography machines (used to produce semiconductors), Xi declared that “no force can stop China’s scientific and technological development.”

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The postWhat’s China’s $47.5 Billion Chip Industry Gamble Really About? first appeared on Liberty & Wealth.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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