China Initiates Third Phase of "Big Fund" for Semiconductor Industry Development

By IndraStra Global News Team

 China is ramping up efforts to fortify its semiconductor industry, injecting an additional 344 billion yuan ($47.5 billion) into a state-backed investment fund. The move comes amidst heightened tensions in the global technology arena, particularly with the United States.
The third phase of the National Integrated Circuit Industry Investment Fund (国家大基金) is colloquially known as the "Big Fund." This initiative, spearheaded by the Ministry of Finance and backed by investments from 19 state-owned entities, marks a significant step in China's quest for technological self-reliance.
The decision to launch this latest phase has garnered widespread attention, primarily due to its strategic implications. The Big Fund is perceived as a vital component of Beijing's broader strategy to fortify its semiconductor sector, particularly in response to escalating export controls imposed by Washington on Chinese tech giants like Huawei Technologies Co. Ltd.
The timing of the Big Fund III launch is significant as the Biden Administration escalates restrictions on China's access to advanced technologies. Furthermore, the composition of investors in this phase differs from previous iterations, signaling a shift towards a more centralized planning approach. 
The Ministry of Finance holds the largest stake in the fund at 17.44%, followed by China Development Bank Capital Co. Ltd. and Shanghai Guosheng Group Co. Ltd., among other state-owned entities. China Construction Bank (CCB), a prominent state-owned lender, has committed 21.5 billion yuan to the Big Fund III, constituting 6.25% of its capital. This change in shareholding structure underscores the government's commitment to steering the development of the semiconductor industry in alignment with national priorities.
The overarching objective of the Big Fund III is to mobilize social capital to bolster multi-channel financing support for the integrated circuit industry. This third phase also represents a substantial investment in developing domestic semiconductor capabilities. It is expected to fuel innovation and research in the sector, potentially reducing China's reliance on foreign suppliers for crucial components.
The establishment of the Big Fund in 2014 marked a departure from traditional state support mechanisms. It adopted a market-oriented approach to attract capital from large corporations, financial institutions, and private investors. It operates under a two-tiered management structure, with strategic decisions made by the board and investments managed by Sino IC Capital Co. Ltd., partially owned by China Development Bank.
Despite its pivotal role in nurturing industry leaders like Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor Ltd., the Big Fund has faced scrutiny due to corruption probes involving its executives. This led to a leadership reset in 2023, with Zhang Xin assuming the presidency.
However, the rollout of the third phase is not without its challenges. Despite the significant financial backing, there are concerns about chip manufacturers' profitability amidst intensifying global competition. Additionally, the evolving geopolitical landscape, characterized by trade tensions and export controls, adds a layer of complexity to China's semiconductor ambitions.
In response to the anti-graft crackdown, industry insiders advocate for a more cautious investment strategy for the Big Fund III. Emphasizing investments in critical areas of the semiconductor industry and adopting a patient, long-term approach is crucial for sustainable industry growth.
China's move to ramp up its semiconductor capabilities comes amid a heightened global focus on technological sovereignty. Similar initiatives in countries like South Korea, where plans to invest $19 billion in the semiconductor industry were recently announced, demonstrate that governments worldwide are recognizing the strategic importance of semiconductor manufacturing. 

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