Key Points:
- China launches largest-ever chip investment to achieve self-reliance amid rising US tech restrictions.
- Prioritizing advanced AI chips, the fund aims to propel China to the forefront of the global semiconductor industry.
China has set up a multibillion-dollar state-backed investment chip fund, intensifying its commitment to bolster its semiconductor industry amid increasing U.S. tech sanctions. The flagship National Integrated Circuit Industry Investment Fund (aka the Big Fund) created the largest-ever chip investment worth approximately 344 billion yuan or $47.5 billion.
Incorporated on May 24, the third phase of the Big Fund has attracted billions of yuan from the central government and various state-owned banks and enterprises, including China Construction Bank (CCB) and Industrial & Commercial Bank of China (ICBC).
This new fund mirrors the initiatives by the United States and the European Union (EU) to enhance domestic semiconductor capabilities. In 2022, the U.S. announced the $53 billion US CHIPS and Science Acts to build and expand semiconductor facilities. Similarly, the EU approved a €43 billion ($47.5B) initiative in 2023 to double its global market share from 10% to a minimum of 20% by 2030.
China’s drive for self-sufficiency in chip industry
The largest-ever semiconductor investment fund is “part of China’s efforts to reduce foreign reliance in its domestic chip industry” as the country continues to face restrictions from Western countries, particularly the U.S. and the Netherlands, limiting its access to advanced technology, according to Winston Ma, adjunct professor at NYU School of Law.
With previous phases primarily targeting equipment and materials, the emphasis of Fund 3 will be on building the complete supply chain. Fund 3 seeks to “focus on advancing computing and memory chips tailored for future AI applications,” Ma explained during an interview with CNBC. “This capital is so critical to the Chinese semiconductor sector. It is indispensable because these companies are struggling with global capital markets,” Ma added.
The Big Fund’s first phase was launched in 2014 with a capital of 138.7 billion yuan, followed by the second phase in 2019, which raised 204 billion yuan.
China Fortune Securities reported that the first two phases of the Big Fund helped establish a strong foundation for China’s chip industry. Fund 3 is expected to focus on high-value-added DRAM chips while continuing to support semiconductor equipment and materials. The focus will be on advanced computing and memory chips that have become crucial for future AI developments.
Chinese chip industry potential
Semiconductors may be small but their impact on our world is enormous. These small components, also known as chips, act as the brains for electronic devices and power everything from smartphones and computers to cars and home appliances.
China’s semiconductor industry has witnessed significant growth amidst geopolitical tensions and export controls imposed by the U.S., Netherlands, and Japan. Efforts to develop indigenous capabilities intensified with government-backed funds aiming to create advanced chip-making capabilities to support the entire supply chain.
Huawei’s chip breakthrough came in August 2023 with the launch of Mate 60 Pro phones, featuring 7-nanometer (nm) chips, equipped with 5G capabilities, and manufactured domestically by Shanghai-based Semiconductor Manufacturing International Corporation (SMIC). The Kirin 9000s chips are comparable in performance to recent Qualcomm chips, indicating that the U.S.-led export controls have spurred domestic chip-building capacity rather than stalling it.
While Chinese tech giant Huawei aims to transition to 5-nanometer production, it still lags two generations behind Apple’s cutting-edge technology. Currently, Apple’s iPhones use 4nm technology, and new models are expected to feature TSMC’s 3nm chips.
China’s semiconductor industry is expected to grow with production capacity set to surge by 40% over the next five years. This growth is driven by advances in memory market expansion, strategic investments, and significant progress in advanced node manufacturing, according to Yole Group’s 2023 Processor Industry Report.
US-China chip war
The semiconductor industry has emerged as one of the most significant global industries and a flashpoint in U.S. and China relations. In October 2022, the U.S. imposed export restrictions banning Chinese companies from purchasing advanced chips and chip-making equipment without a license. Washington has also urged allies like the Netherlands and Japan to implement similar restrictions to prevent China from accessing key chip technologies. U.S. pressure has led to the Netherlands blocking ASML from selling and even servicing chip-making machines sold to China.
The U.S. and the Netherlands restrictions prevent ASML from selling its products to China. The Veldhoven-based ASML is the world’s only supplier of extreme ultraviolet lithography (EUV) photolithography machines essential for producing advanced chips. Although barred from selling EUV machines to China since 2019, ASML had been selling advanced deep ultraviolet (DUV) systems to China until this year. ASML is the only company making the $200 million EUV machines that print the most intricate patterns on a chip, with the rest of the layers printed using various DUV systems. ASML dominates the lithography market with an 82.9% market share, followed by Canon and Nikon.
In retaliation, Beijing imposed export controls on Gallium and Germanium, crucial raw materials for chip manufacturing. China’s new chip fund is a defensive move against Western sanctions and aligns with Xi Jinping’s ambitions to make China a global tech leader.
Global semiconductor industry outlook
As geopolitical tensions rise and the technology race heats up, nations are increasing efforts to secure technological lead and self-sufficiency. The global semiconductor industry is projected to reach $1 trillion in revenue by 2030, with significant manufacturing capacity concentrated in Taiwan, China, and South Korea.
Key players in the semiconductor industry include TSMC, MediaTek, and UMC in Taiwan; SMIC, Hua Hong Semiconductor, HiSilicon, Naura Technology Group in China; Sony, Tokyo Electron, Fujitsu, Toshiba in Japan; Samsung Electronics, SK Hynix, LG Electronics in South Korea; and Intel, NVIDIA, AMD in the United States.
Key Takeaways
China’s strategic push in the semiconductor industry highlights its ambition to lead in chip technology. The $47.5 billion Big III fund demonstrates China’s determination to overcome Western sanctions and reduce reliance on foreign technology. As the global semiconductor race intensifies, China’s advancements could reshape the industry landscape and global economic dynamics.
- China’s Semiconductor Self-Sufficiency Drive: China’s new fund targets the development of a comprehensive supply chain for advanced AI and memory chips, aiming to develop a self-sufficient and advanced chip industry.
- Geopolitical tensions and chip industry development: The new fund reflects China’s resilience and accelerated domestic chip development amid geopolitical tensions and challenges such as limited access to crucial technologies like lithography machines. This investment represents a significant step towards reducing foreign reliance and advancing China’s position in the global semiconductor market.
- Global Semiconductor industry growth trajectory: With global revenue set to hit $1 trillion by 2030, the semiconductor sector is poised for substantial expansion. Taiwan, South Korea, and China lead in manufacturing capacity, while Western nations like the U.S. and EU ramp up efforts to bolster domestic semiconductor capabilities and maintain technological leadership.
