To Counter US, China Invests Big in Domestic Chip Production with US$47bn Fund

• 15 June 2024
• Property Focus
• 1617 Views

In a bold move to bolster domestic chip manufacturing and counter US restrictions on advanced technology, China launched a new state-backed semiconductor fund worth a staggering 344 billion yuan (US$47 billion), according to Asia.nikkei on May 27, 2024.

This substantial investment, known as the China Integrated Circuit Industry Investment Fund Phase III (Big Fund Phase III), marks the latest and largest instalment in a series of initiatives designed to propel China’s self-sufficiency in the crucial chip sector. The Big Fund Phase III dwarfs its predecessors. Established in 2014, Phase I began with an investment of approximately 140 billion yuan, followed by Phase II in 2019 with 200 billion yuan. This significant increase in funding underscores China’s commitment to achieving domestic dominance in chip production.

The Chinese government, recognising the strategic importance of chip technology, is taking a leading role in the initiative. The Ministry of Finance holds a significant 17% stake in the fund, while a subsidiary of the state-owned National Development Bank contributes an additional 10%.  Local authorities are also involved, with an investment company under the Shanghai municipal government holding a 9% stake, alongside other state-owned enterprises.

While specific investment targets remain undisclosed, industry experts anticipate a focus on two key areas: semiconductors specifically designed for artificial intelligence (AI) applications and the crucial manufacturing equipment required for chip production.  The US has imposed stringent export controls on these very sectors, aiming to limit China’s capacity to develop and produce cutting-edge AI chips.

In response to these restrictions, the Big Fund Phase III is expected to not only directly finance research and development efforts to enhance AI capabilities using existing technology but also strategically support domestic alternatives.  The fund is likely to provide crucial financing to Chinese manufacturers of silicon wafers, chemicals, and industrial gases, currently dominated by international suppliers.  This strategic shift aims to rapidly transition major Chinese semiconductor companies to a fully domestic supply chain, ultimately reducing dependence on the US and other foreign sources.

The launch of the Big Fund Phase III builds upon China’s “Made in China 2025” initiative, a high-tech industrial development plan unveiled in 2015.  This substantial investment signifies China’s unwavering commitment to achieving self-sufficiency in chip technology, a sector deemed critical for national security and economic growth.

• Technology and Engineering