China's Major Boost: $47.5 Billion Injection into Semiconductor Sector

China is ramping up its efforts to lead in future advanced technologies by establishing its biggest semiconductor state investment fund ever.

This fund, valued at $47.5 billion, comes in response to the US placing wide-ranging restrictions on the export of American chips and chip technology. This move is aimed at curbing China's aspirations in this field.

The fund, supported by six of the country's biggest state-owned banks like ICBC and China Construction Bank, highlights Chinese leader Xi Jinping's efforts to strengthen China's role as a tech superpower.

Beijing's Made in China 2025 plan aims for China to lead globally in various sectors, such as artificial intelligence (AI), 5G wireless technology, and quantum computing.

The newest investment opportunity is the third phase of the China Integrated Circuit Industry Investment Fund, also known as the "Big Fund." It was officially launched in Beijing on Friday, as reported by the National Enterprise Credit Information Publicity System.

The fund's first phase was created in 2014, with a total of 138.7 billion yuan ($19.2 billion). The second phase was established five years later, with a registered capital of 204.1 billion yuan ($28.2 billion).

A Nvidia HGX H100 server is set up at Nvidia Corp.'s headquarters in Santa Clara, California, US. The company is now a key player in the tech industry, dominating 80% of the market for a special type of chip known as a data-center accelerator. Currently, there is an eight-month wait time for one of its AI processors. The image below shows the server at the headquarters.

A Nvidia HGX H100 server arranged at the company's headquarters in Santa Clara, California, US, on Monday, June 5, 2023. Nvidia Corp., suddenly at the core of the world's most important technology, owns 80% of the market for a particular kind of chip called a data-center accelerator, and the current wait time for one of its AI processors is eight months. Photographer: Marlena Sloss/Bloomberg via Getty Images

Marlena Sloss/Bloomberg/Getty Images

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The US is intensifying the technology competition by preventing China from accessing AI chips. The investments made are intended to boost the country's semiconductor industry to meet global standards by 2030. The Ministry of Industry and Information Technology announced in 2014 that the funds will mainly support chip manufacturing, design, equipment, and materials.

Concerned about obstacles on the horizon?

Recent years have seen corruption scandals impacting the “Big Fund.” In 2022, the country’s anti-graft watchdog initiated a crackdown on the semiconductor industry, looking into key individuals in state-owned chip companies in China. Lu Jun, the former chief executive of Sino IC Capital, the fund's manager, faced investigation and was charged with bribery in March, as stated by the country’s top prosecutor.

Xi's ambitions to achieve tech self-reliance in China could face serious obstacles beyond the recent scandals. The US implemented strict export controls in October 2022, prohibiting Chinese companies from purchasing advanced chips and chip-making equipment without a license. Additionally, the Biden administration has urged allies like the Netherlands and Japan to impose similar restrictions.

Beijing responded to Western sanctions by implementing export controls on two important raw materials crucial for the chipmaking industry worldwide.

The establishment of the chip fund serves not only as a defensive measure against sanctions, but also aligns with Xi's goal of positioning China as a prominent player in the global technology sector.

China's Huawei surprised everyone in the industry last year with the release of a new smartphone. This phone was equipped with a 7-nanometer processor produced by China's Semiconductor Manufacturing International Corporation (SMIC).

During the launch of the Huawei phone, analysts were puzzled. They couldn't figure out how the company managed to develop such advanced technology, especially with the United States imposing restrictions on China's access to foreign technology.

During a meeting with Dutch Prime Minister Mark Rutte in March, Xi confidently stated that nothing can hinder China's progress in science and technology.

The Netherlands is where ASML, the only producer of extreme ultraviolet lithography machines essential for creating high-tech semiconductors, is located. In January, the company revealed that the Dutch government had imposed restrictions on the export of some of its lithography machines to China.

Editor's P/S:

The establishment of China's colossal semiconductor state investment fund, valued at $47.5 billion, underscores the country's unwavering ambition to dominate advanced technologies. This move is a strategic response to the United States' export restrictions on American chips and chip technology, aimed at hindering China's technological aspirations. The fund's creation is a testament to Chinese leader Xi Jinping's vision of strengthening China's position as a tech superpower.

Beyond its defensive nature, the chip fund aligns with Xi's broader goal of positioning China as a global technological powerhouse. The government's "Made in China 2025" plan prioritizes China's leadership in sectors such as artificial intelligence, 5G wireless technology, and quantum computing. The fund's support for chip manufacturing, design, equipment, and materials reflects this strategic vision. Despite challenges posed by corruption scandals and Western sanctions, China remains steadfast in its pursuit of technological independence and global dominance.