China has closed its third state-run investment fund in a bid to strengthen its semiconductor industry and reduce its reliance on other countries for both wafer use and production, prioritizing so-called chip sovereignty.
China’s National Integrated Circuit Industry Investment Fund, also known simply as the “Big Fund,” has had two funds: Big Fund I (2014-2019) and Big Fund II (2019-2024). The latter was significantly larger than the former, but Big Fund III is larger than both, at 344 billion yuan (about $47.5 billion), public filings show.
The larger-than-expected size of Big Fund III underscores China’s goal of self-sufficiency in chip production, following Huawei’s recent increased reliance on Chinese suppliers, and serves as a reminder that the semiconductor war between China and the West is being fought both ways.
The United States and Europe are not the only countries looking to reduce their reliance on their longtime tech rivals: China also has reason to worry about its supplies, and it is not just exports from the United States and its partners that are at risk.
When it comes to semiconductor manufacturing, Taiwan is the biggest concern. If China were to seize Taiwan’s manufacturing capacity, the US and its allies would be at a huge disadvantage. Taiwan Semiconductor Manufacturing Company (TSMC) currently produces about 90% of the world’s most advanced semiconductors.
Meanwhile, Bloomberg has heard from sources that Netherlands-based ASML and TSMC have ways to disable semiconductor manufacturing equipment in case China invades Taiwan.
Meanwhile, U.S. Secretary of Commerce Gina Raimondo recently declared that China produces about 60% of the legacy chips used in cars and consumer electronics.
The chip wars have spanned both legacy and advanced chips with mixed results.
Chinese officials argue that U.S. policies are backfiring and causing exports from major U.S. chipmakers to decline, a view shared by other countries.
Either way, that leaves companies like Nvidia to walk a delicate balance “between maintaining the Chinese market and dealing with tensions with the U.S.,” Heve Chen, a market analyst at IG, told Reuters recently. The company customized three chips for China after U.S. sanctions prevented it from exporting cutting-edge semiconductors, but competition forced it to accept lower prices than it wanted.
But the commercial struggle for Western chipmakers may be worth the cost if they can prevent China from developing and accessing more advanced chips as quickly as its rivals.
There are signs that the restrictions could hit China where it hurts, such as if Chinese AI companies are denied access to cutting-edge chips from Nvidia or if it makes it harder for China’s leader, SMIC, to make its own chips.
The Big Fund III itself is a sign that China is feeling the pressure: Reports say the money will not only be used for large-scale wafer manufacturing, like previous funds, but also for making high-bandwidth memory chips. Known as HBM chips, these chips are used in AI, 5G, IoT, and more.
But its size is its greatest feature.
Backed by six major national banks, Big Fund III dwarfs the $39 billion in direct incentives the U.S. government has earmarked for semiconductor manufacturing as part of the CHIPS Act, though total federal funding stands at $280 billion.
The €43 billion EU chip bill, like South Korea’s $19 billion aid package, looks small compared to both and likely took notice from the market.
News of Big Fund III sparked a rally in shares of Chinese semiconductor companies that stand to benefit from the new capital, but Bloomberg noted that Beijing’s past investments haven’t always paid off.
In particular, “China’s top leadership has been frustrated by years of failure to develop semiconductors to replace U.S. circuits. Moreover, the former head of a big fund was fired and investigated for corruption,” the media noted.
Even without corruption, making big changes in semiconductor manufacturing is a slow process, and it’s been slow in Europe and the US, but there are some interesting new developments.
For example, French deep tech startup Diamfab is working on developing diamond semiconductors that could aid in the green transition, particularly in the automotive industry. Though it’s still a few years away, this is the kind of Western innovation that will be just as interesting to track as Chinese incumbents are.
Additional reporting by Rita Liao.
