China’s economic downturn hits $41 billion in chip funding

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The most ambitious funding round China has ever launched to support its semiconductor industry is set to miss its initial target of 300 billion yen due to difficult economic conditions, according to three people familiar with the situation. It is said that it is struggling to reach the RMB ($41 billion).

The Chinese government recently approved the third round of the China Integrated Circuit Industry Investment Fund, also known as the Big Fund. Since its establishment in 2014, the fund has contributed to promoting the growth of the chip industry and served as an important tool for President Xi Jinping’s promotion. Towards technological self-sufficiency.

The fund raised RMB 139 billion and RMB 200 billion in the first two phases, respectively, supporting China’s chip champions while investing in research and development.

However, the Ministry of Industry and Information Technology, which is leading the effort, is having difficulty raising new targets from local governments and state-owned enterprises that are struggling due to the economic slowdown, three people said.

According to people close to state-level governments, the slow recovery from the coronavirus pandemic has put some local governments under financial strain, including high debt problems, and local governments are struggling to make investments. He said he has become “more cautious and conservative.”

The Treasury was the largest investor in the Big Fund’s first and second phases, providing more than 44% and nearly 15% of the capital, respectively. The rest went to local governments and state-owned enterprises such as China Telecom, with the Chinese government investing in Chinese industry and encouraging them to use their expertise to identify potential national winners.

The lack of major candidates to support with new support has also contributed to the disappointing response. Industry officials and analysts said investment decisions became more reluctant in the face of U.S. restrictions on the industry’s access to advanced technology.

“Big funds will have to consider the direction of U.S. regulation, rather than just considering investment value, when deciding who to bet on, which will make their options more limited.” said a China-based analyst who requested anonymity. Sensitivity of the subject.

The fund had already adopted a more cautious approach in its second phase. According to Wind data analyzed by the Financial Times, more than 30% of the proceeds went toward subsequent funding for companies supported in the first phase.

Corruption investigations into big funds that have lasted more than a year have also affected the pace of investment and market confidence. Since July last year, more than 10 executives related to the fund have been detained for investigation, leading to a stagnation in investment activities.

Two people familiar with the fund said the money raised in the second phase remains underutilized.

Despite these challenges, the big funds that were funded in 2014 and 2019 are still trying to maintain their five-year schedules. “It’s about time for another round. Failure to do so will erode confidence,” said Linghao Bao, an analyst at research group Tribium China.

Three people close to the fund said the previous two rounds focused on semiconductor manufacturing, including foundries Semiconductor Manufacturing International and Huahong Semiconductor, but the latest round The company will mainly focus on chip manufacturing equipment.

Over the past year, the United States and its allies have tightened export controls on advanced semiconductor manufacturing equipment to China, forcing Chinese chipmakers, including major memory chipmaker Yangtze Memory Technology, to rely more on domestic equipment. There is.

The State Council Press Office, the Ministry of Industry and Information Technology, and Big Fund did not respond to requests for comment.