Science & Technology

China Creates $47.5 Billion Chip Fund

China has set up the largest investment fund in the history of this Asian country dedicated to the development of homegrown chips, which is especially important for Beijing at the current historical moment characterized by a high level of geopolitical tension.

China Creates $47.5 Billion Chip Fund

The United States has restrictions on the supply of a variety of microcircuits from US companies and equipment needed for making advanced chips to China. Some of Washington’s allies have joined the relevant measures. For example, in January, the Dutch company ASML, which is one of the world’s main manufacturers of chip-producing equipment, announced that it had received an order from the Dutch government to stop exporting some of its products to China. Washington justifies its restrictive measures with considerations related to the need to ensure a high level of national security. At the same time, in this case, on the official level is also declared the goal in the form of curbing China’s technological development. However, in the context of such statements, it is separately noted that the main goal is still to ensure national security. In October, US Commerce Secretary Gina Raimondo, commenting on the next restrictions on the export of chips to China, said that appropriate efforts were being made in the context of achieving results related specifically to national security. Also, official speakers of the United States in the space of the mentioned discourse have repeatedly noted that the Asian country can use advanced microcircuits to strengthen and develop its military potential.

It is worth noting that Washington continues to urge allies to tighten measures regarding the supply of high-tech products to the Asian country. Relevant appeals have been sent to countries such as Germany, the Netherlands, South Korea, and Japan.

At the same time, in the context of the current configuration of technological reality, chip manufacturing is of particular importance, which is gradually increasing and in the foreseeable future will correspond to the category of critical necessity. During the period of active development, distribution, and integration of artificial intelligence, microcircuits are what in a certain sense can be called a basic necessity product. The chips are used for training and subsequent operation of AI systems. At the same time, the opinion is increasingly circulating in the expert community that artificial intelligence will become the main driving force of progress on a global scale in the foreseeable future. Against the background of these expectations and forecasts, the realism of which is very high, it is obvious that AI will determine the capabilities of countries, including in political and economic contexts. The cumulative effect of advances in the artificial intelligence industry is likely to become a factor shaping the geopolitical position of the state.

Against the background of these arguments, China’s desire to develop a domestic sphere of chip production is logical and fully consistent with the reality that has formed in the space of global development in the broad sense of the corresponding definition.

The media reports that 344 billion yuan ($47.5 billion) was amassed as part of the third phase of the National Integrated Circuit Industry Investment Fund. These funds came from the central government of the Asian country and various state-owned banks and enterprises, including, for example, Industrial & Commercial Bank of China Ltd. The fund was incorporated on Friday, May 24th.

The latest investment vehicle, known as Big Fund III, reflects the next stage in the implementation of the efforts of the government of the head of the People’s Republic of China Xi Jinping to build its own semiconductor industry.

Against the background of news about the measures taken by the leadership of the Asian country to stimulate the development of homegrown chip production, share price indicators of the largest local makers of microcircuits showed an increase. Securities of Semiconductor Manufacturing International Corp. (SMIC) rose 8.1% in Hong Kong trading. At the same time, the share price of Hua Hong Semiconductor Ltd. showed growth exceeding the 10% mark.

The largest shareholder of Big Fund III is the Ministry of Finance of China and investment companies owned by the municipal authorities in Shenzhen and Beijing. The Shenzhen government is providing support to several chip manufacturing plants in South China’s Guangdong Province. The mentioned actions could potentially help Huawei Technologies Co. mitigate the negative effect of the US sanctions, which deprived this company of access to most imported semiconductor components.

Global superpowers, led by the United States and the European Union, have invested nearly $81 billion in cranking out a new generation of chips. These actions have intensified competition with China for leadership in the microcircuits area. The Chips and Science Act, adopted by the administration of the President of the United States Joe Biden, provides for the allocation of $39 billion in grants for chip manufacturers and another $75 billion in loans and guarantees for corresponding purposes.

Recently, Beijing has been implementing an active industrial policy, including the ambitious Made in China 2025 program, which set goals for the development of biotechnologies, electric vehicles, and semiconductors. The mentioned program was made public in 2015. Since then, the government of the Asian country has been the main sponsor of the Chinese advanced technology sector. For example, SMIC receives part of the state capital. Funds are also allocated for the development of other Chinese manufacturers of microcircuits.

The National Chip Fund was established in China about ten years ago. Xi Jinping launched the process of large-scale overhaul of the country’s manufacturing industry as soon as possible after he became the head of China. Within the framework of the relevant initiative, the main component of the activity is the introduction of sophisticated technologies. This aspect of the effort implies the development of robotics and the stimulation of the production of advanced chips.

Beijing more than doubled the size of Big Fund II in 2019. These actions by China are because, during the period when Donald Trump was president of the United States, the struggle between Beijing and Washington for technological superiority significantly intensified. The increased capital has been used to finance some of the most promising microcircuits manufacturing projects. After that, new SMIC plants were built. The factories of the maker of microcircuits Advanced Micro-Fabrication Equipment Inc. were also built.

It is worth noting that Beijing’s financial investments in the high-tech sector have not always generated positive results and have not been effective in terms of final indicators in every case. China’s top leadership, according to media reports, is largely disappointed that efforts over several years to stimulate homegrown chip production have been associated with numerous setbacks. In this case, their greatest chagrin is that Beijing has still not reached such a level of development in the area of making microcircuits that would allow it to fully confront Washington in the appropriate plane and be an absolutely independent player in a kind of condition of fully autonomous provision of its needs. Moreover, the former head of the Big Fund was removed from office and became a person of interest in the investigation due to allegations of involvement in corrupt practices.

The Joe Biden administration has taken unprecedented measures aimed at slowing down China’s technological progress. Over the past two years, Chinese companies have lost the opportunity to buy the most advanced Nvidia Corp. chips, which are necessary for training artificial intelligence models.

Beijing is responding to restrictive measures from Washington by increasing investments in advanced microcircuits manufacturing technologies. The corresponding approach is an obvious indication that China is striving for technological sovereignty, preferring this strategy of action in the context of the current geopolitical environment. Beijing is not targeting so-called circumvention schemes, which involve the purchase of products subject to restrictive measures through third countries.

Currently, according to media reports, China is building a kind of network of chip companies around Huawei, which is a national leader in the area of technological breakthroughs related to the development and production of advanced microcircuits. Big Fund III will provide financing for relevant projects.

Serhii Mikhailov

2359 Posts 0 Comments

Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.