China is set to launch its biggest ever fund to boost its chips industry, with plans to court 300 billion yuan (about $41 billion) in investments, two people familiar with the matter said.
That target outdoes similar funds launched in 2014 and 2019, which according to government reports raised 138.7 billion yuan and 200 billion yuan respectively.
The development comes on the heels of US sanctions-hit Chinese tech giant Huawei’s success in building an advanced 7-nanometer processor, in collaboration with state-backed chipmaker Semiconductor Manufacturing International Corporation (SMIC), to power its latest 5G-enabled smartphone.
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Huawei’s breakthrough, confirmed by a teardown report from analysis firm TechInsights, marks a significant leap for China’s semiconductor industry amid a bitter chip war with the US.
It also comes at a time when Beijing has ploughed money into the domestic chip industry in-line with President Xi Jinping’s call for self-reliance in technology to avoid being “strangled” by Western sanctions.
The new Huawei phone, dubbed Mate 60 Pro and powered by a new Kirin 9000s chip, is the first to utilise SMIC’s most advanced 7nm technology.
SMIC was among the biggest beneficiary of the state-backed Big Fund, formally known as China Integrated Circuit Industry Investment Fund.
Chip equipment in focus
The new state-backed fund is likely to be the biggest of three funds launched by the Big Fund.
China’s finance ministry is planning to contribute 60 billion yuan to the fund, which was approved by authorities in recent months, sources said. Other contributors could not be immediately learned.
One of the fund’s main areas of investment will be equipment for chip manufacturing, said one of the two people and a third person familiar with the matter.
The focus on chip equipment follows a series of export control measures imposed by Washington in an effort to hobble China’s development of sensitive technologies and military capabilities.
Key US allies Japan and the Netherlands – both of whom are home to some of the world’s biggest suppliers of chipmaking equipment – have also extended similar export controls, targeting China.
Investors with deep pockets
Backers of the Big Fund’s previous two funds include the finance ministry and deep-pocketed state-owned entities such as China Development Bank Capital, China National Tobacco Corporation and China Telecom.
Apart from SMIC, the Big Fund has provided financing to China’s second biggest chip foundry Hua Hong Semiconductor, which raised $3 billion in the country’s biggest public offering this year.
Yangtze Memory Technologies, a maker of flash memory and a number of smaller companies and funds, has also been a beneficiary of the fund.
Despite those investments China’s chip industry has struggled to play a leading role in the global supply chain, especially for advanced chips.
That, however, could change with the Huawei-SMIC chip. Research firm TechInsights said in its report that the chip suggests the Chinese government is making some headway in attempts to build a domestic chip ecosystem.
Reports of Huawei’s breakthrough and the fund closely follow a high-stakes visit to Beijing by US Commerce Secretary Gina Raimondo.
Dan Hutcheson, an analyst with TechInsights said Huawei’s progress comes as a “slap in the face” to the US.
“Raimondo comes seeking to cool things down, and this chip is [saying] ‘look what we can do, we don’t need you,'” he said.
More clarity awaited
Fundraising process for the new $40-billion fund will likely take months and it was not immediately clear when the third fund will be launched or if further changes will be made to the plan, the first two sources said.
The Big Fund is considering hiring at least two institutions to invest the new fund’s capital, the three people said.
Several senior officials and former officials at SINO-IC Capital, the sole manager for the Big Fund’s first two funds, have been under investigation by China’s anti-graft authority since 2021.
Even so, SINO-IC Capital is expected to remain one of the managers for the third fund, two of the people said.
Chinese officials have also reached out to China Aerospace Investment, the investment arm of state-owned China Aerospace Science and Technology Corporation, to discuss being one of the managers, two of the people said.
- Reuters, with additional inputs from Vishakha Saxena
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