China unveils $48 billion fund to bolster chip industry

  • The new funding comes in the wake of U.S. efforts to restrict China’s access to advanced semiconductors and chip-manufacturing equipment

Sherry Qin (with inputs from The Wall Street Journal)
First Published27 May 2024
An working at a semiconductor chips factory in Huai'an, in eastern China's Jiangsu province. (Photo by AFP)
An working at a semiconductor chips factory in Huai’an, in eastern China’s Jiangsu province. (Photo by AFP)

China has set up a nearly $48 billion fund to help its semiconductor industry build up a local supply chain and close the technology gap with the U.S., coming as the country wrestles with restricted access to the world’s most advanced semiconductors and chip-making equipment.

The 344 billion yuan ($47.49 billion) semiconductor fund, China’s largest ever, is the third phase launched by the China Integrated Circuit Industry Investment Fund, and double the total amount raised in previous phases in 2014 and 2019.

The fund was registered Friday, according to the National Enterprise Credit Information Publicity System, a government-run credit information agency. China’s Ministry of Finance is the fund’s biggest shareholder, with a 17% stake, while five major Chinese state-owned banks— Industrial & Commercial Bank of China , China Construction Bank , Agricultural Bank of China , Bank of China and Bank of Communications—each hold around 6% stakes, according to Tianyancha, a private Chinese company-information database.

The new funding comes in the wake of several rounds of U.S. restrictions on the export of advanced semiconductors and chip-manufacturing equipment to China, with the most recent in October significantly hampering shipments of artificial-intelligence chips.

At the same time, major economic powers around the world have rolled out industry support packages amid intensifying demand for advanced chips to power AI computing and growing concerns over supply-chain disruptions. The U.S. last month granted up to $6.4 billion to Samsung Electronics and up to $6.6 billion to Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, to build factories in the U.S. as part of the $53 billion Chips Act. South Korea last week unveiled a $19 billion package to bolster its chip industry.

“The competition has intensified as all countries are trying to achieve [chip] self-sufficiency,” said Bernstein analyst Qingyuan Lin.

Chinese chip manufacturers have been ramping up investment in domestic supply chains and the development of advanced chips.

SEMI, a global industry body that represents chip manufacturers and suppliers, estimates that Chinese companies will start operations of 18 chip manufacturing projects this year, expanding China’s chip-making capacity this year by 12%. Chinese companies bought an estimated more than $30 billion of chip-making equipment last year, a record amount and about one-third of the global total, according to SEMI.

Most of China’s new chip factories focus on older-generation chips that aren’t affected by current U.S. restrictions. Analysts think the new fund could position companies to catch up in advanced chip-making capabilities and to strengthen their mature-node production, with China’s share of the global foundry business still relatively low.

Semiconductor Manufacturing International Corp.and Hua Hong Semiconductor , two of China’s largest chip foundries, together made up around 8% of the global foundry market share in the first quarter, while Taiwan Semiconductor Manufacturing Co.took up 62% of the market, according to global technology research firm Counterpoint.

The fund may act like an asset management firm, taking equity stakes in both public and private chip companies. It could “assume the lead investor role in many instances in order to support a higher valuation and attract other state-owned enterprises,” said Morningstar analyst Phelix Lee.

The sheer size of the new funding shows that China hasn’t slowed in its dedication to build up a domestic semiconductor ecosystem in the face of U.S. restrictions, but instead “actually accelerated,” Lin of Bernstein said.

Chinese semiconductor shares rose broadly in Monday trading, with SMIC adding 7.4% and Hua Hong gaining 11.5%.

Write to Sherry Qin at sherry.qin@wsj.com

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