China has launched its third state-backed investment fund to bolster its semiconductor industry, aiming to achieve greater self-sufficiency in chip production and reduce reliance on foreign nations. This strategic move underscores China’s commitment to attaining “chip sovereignty.”
The new fund, known as the National Integrated Circuit Industry Investment Fund or simply “the Big Fund,” follows two previous iterations:
- Big Fund I (2014-2019): Laid the groundwork for China’s semiconductor ambitions.
- Big Fund II (2019-2024): Expanded the scale and impact significantly.
The newly established Big Fund III surpasses its predecessors, with a capital infusion of 344 billion yuan (approximately $47.5 billion), highlighting China’s intensified efforts in this sector.
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The significant increase in funding, coupled with Huawei’s recent pivot towards Chinese suppliers, signals a robust strategy to achieve self-reliance in semiconductor production. This development comes amidst a backdrop of escalating tech tensions between China and the West.
Global Chip War
The U.S. and Europe have been striving to reduce their dependence on China for critical tech components. Conversely, China is equally concerned about its supply chain vulnerabilities.
Taiwan’s semiconductor industry, dominated by Taiwan Semiconductor Manufacturing Company (TSMC), which produces around 90% of the world’s advanced chips, is a particular focus. The strategic importance of TSMC cannot be overstated, as its capture by China would significantly impact the U.S. and its allies.
In a potential conflict scenario, sources suggest that companies like ASML and TSMC have mechanisms to disable chipmaking equipment to prevent misuse by China.
China currently produces about 60% of legacy chips, integral to cars and appliances. However, the battle for dominance extends to advanced chips, with varying success. U.S. Commerce Secretary Gina Raimondo has emphasized the mixed outcomes of these efforts.
The ambitious scale of Big Fund III has sparked reactions within financial markets. Chinese semiconductor stocks rallied, buoyed by the influx of new capital. Yet, historical investments in the sector have faced challenges, including corruption scandals and underwhelming technological advancements. The former head of the Big Fund was removed and investigated for corruption, highlighting governance issues that have impeded progress.
Comparative Analysis with Global Initiatives
Big Fund III’s scale exceeds the $39 billion allocated by the U.S. under the CHIPS Act for chip manufacturing, though the total federal funding package amounts to $280 billion. In comparison, the EU Chips Act and South Korea’s support package stand at €43 billion and $19 billion, respectively.
These figures reflect the intense global competition to secure semiconductor supply chains and technological leadership.
Big Fund III aims to focus on large-scale wafer manufacturing and the production of High Bandwidth Memory (HBM) chips, essential for AI, 5G, and IoT applications. Despite the ambitious funding, the path to technological independence is fraught with challenges, requiring sustained effort and innovation.
In contrast, Western countries continue to explore cutting-edge technologies. For instance, French startup Diamfab is developing diamond semiconductors that could revolutionize the automotive industry and support a green transition, though this innovation is still years away from commercialization.