China unleashes $40 billion state fund to supercharge its semiconductor sector

China is gearing up to close the technological divide with the United States by unveiling a groundbreaking state-backed investment fund, targeting a remarkable $40 billion infusion into its semiconductor sector. This bold endeavor, the largest among the trio managed by the China Integrated Circuit Industry Investment Fund, represents a significant step forward in China's quest for semiconductor self-sufficiency.

China unleashes $40 billion state fund to supercharge its semiconductor sector

In stark contrast to its predecessors in 2014 and 2019, which amassed 138.7 billion yuan and 200 billion yuan respectively, this new fund aspires to reach a staggering 300 billion yuan (approximately $41 billion), as confirmed by government estimates.

While the Chinese finance ministry has pledged 60 billion yuan, the identities of other contributors remain shrouded in secrecy due to confidential discussions. Key areas of investment will revolve around advanced chip fabrication machinery, underlining China's determination to achieve autonomy in semiconductor production—a crucial goal given heightened export control measures imposed by the US.

Last October, the United States imposed comprehensive penalties limiting China's access to cutting-edge chip manufacturing machinery. Meanwhile, US allies like Japan and the Netherlands have implemented similar restrictions. The fundraising process for the new fund is expected to unfold over several months, with the timing and potential plan adjustments yet to be determined.

The Big Fund, which received support from the finance ministry and state-owned enterprises in its initial two funds, has financed several smaller companies and funds, including prominent players like Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor. Despite these investments, China's chip sector faces challenges in establishing a dominant global presence in cutting-edge semiconductors.

To manage the capital of the new fund, the Big Fund is considering engaging at least two institutions to ensure responsible resource allocation. SINO-IC Capital, the manager of the initial two funds, is expected to continue playing a key role. Additionally, China Aerospace Investment may become involved as fund managers, further solidifying the potential impact of this substantial investment fund on China's semiconductor industry as it strives for global competitiveness and reduced reliance on external chip technology.

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