By Blessing Nweke
China is launching its largest-ever semiconductor state investment fund, valued at $47.5 billion. This initiative comes in response to stringent U.S. export restrictions aimed at curbing Beijing’s technological advancements. The new fund, supported by investments from six of China’s largest state-owned banks, including ICBC and China Construction Bank, represents a significant escalation in President Xi Jinping’s strategy to bolster China’s high-tech capabilities.
The establishment of this fund aligns with China’s broader “Made in China 2025” strategy, which seeks to position the nation at the forefront of several advanced industries, such as artificial intelligence (AI), 5G wireless, and quantum computing. The fund, dubbed the China Integrated Circuit Industry Investment Fund, also known as the “Big Fund,” was officially announced in Beijing on Friday, as detailed by the National Enterprise Credit Information Publicity System.
Following the announcement, Chinese semiconductor stocks experienced a notable surge. Semiconductor Manufacturing International Corporation (SMIC), the world’s third-largest contract chipmaker, saw its shares rise by 7% since Monday. Meanwhile, Hua Hong Semiconductor, China’s second-largest chip foundry and a key supplier for Huawei, enjoyed a 13% increase in its stock price.
This investment marks the third phase of the “Big Fund,” with previous phases launched in 2014 and 2019. The first phase started with a capital of 138.7 billion yuan ($19.2 billion), while the second phase grew to 204.1 billion yuan ($28.2 billion). The primary goal of these investments is to elevate China’s semiconductor industry to meet international standards by 2030, focusing on areas such as chip manufacturing, design, equipment, and materials.
However, the “Big Fund” has not been without its challenges. It has been marred by corruption scandals, including a high-profile investigation into Lu Jun, the former chief executive of Sino IC Capital, the management firm for the “Big Fund.” Lu Jun was indicted on bribery charges in March 2022, highlighting ongoing governance issues within China’s semiconductor sector.
These internal challenges are compounded by external pressures from the United States. In October 2022, the U.S. implemented comprehensive export controls that prevent Chinese companies from acquiring advanced chips and chip-making equipment without a license. The Biden administration has also urged allies such as the Netherlands and Japan to implement similar restrictions. In retaliation, China imposed export controls on two critical raw materials essential to global chip manufacturing.
The new fund is not just a defensive measure against Western sanctions but is also a crucial part of Xi Jinping’s vision for China’s technological self-reliance. Despite the U.S. restrictions, China has made significant strides in semiconductor technology. For instance, Huawei’s launch of a new smartphone powered by a 7-nanometer processor from SMIC in 2023 surprised industry experts, who had believed that U.S. restrictions would hinder China’s ability to produce such advanced chips.
In a meeting with Dutch Prime Minister Mark Rutte in March, Xi Jinping emphasized China’s determination to advance its scientific and technological development, asserting that “no force can stop China’s scientific and technological development.” This statement underscores the strategic importance China places on overcoming technological barriers imposed by foreign powers.
The Netherlands, home to ASML, the exclusive manufacturer of extreme ultraviolet (EUV) lithography machines crucial for advanced semiconductor production, has also restricted sales of some of its equipment to China, following U.S. pressure. This ongoing technological tug-of-war between China and the West highlights the geopolitical stakes involved in the global semiconductor industry.
Overall, China’s new $47.5 billion semiconductor fund underscores its commitment to achieving technological self-reliance and countering Western efforts to impede its progress. As Beijing continues to navigate both internal and external challenges, its aggressive investment in the semiconductor sector reflects a broader strategy to secure its future as a global tech superpower.
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