China invests $47.5B in Big Fund III to boost semiconductor tech

China invests $47.5B in Big Fund III to boost semiconductor tech

China has initiated the third phase of its National Integrated Circuit Industry Investment Fund, commonly referred to as Big Fund III, to boost self-reliance in the semiconductor sector. Launched last week, this fund has a registered capital of 344 billion yuan (around $47.5 billion), marking it as the most significant state-backed investment in China’s semiconductor industry to date.

Big Fund III aims to support various facets of the semiconductor industry, including contract manufacturers, equipment suppliers, and material providers. The primary goal is to enhance domestic capabilities and minimize dependence on foreign technology, especially amid increasing US tech sanctions.

Beneficiaries and Strategic Goals

Key beneficiaries of this extensive investment include Semiconductor Manufacturing International Corp (SMIC) and Hua Hong Semiconductor. Equipment suppliers such as Naura Technology Group and Advanced Micro-Fabrication Equipment, along with raw material providers like National Silicon Industry Group, are also set to receive considerable support.

Big Fund III is viewed as a counteraction to the US Chips and Science Act of 2022, which allocated $53 billion to revitalize the American semiconductor industry. China's strategic aim with this fund is to establish a strong, self-reliant semiconductor industry capable of enduring external pressures and restrictions. The fund includes 19 equity investors, led by China’s Ministry of Finance.

Historical Background and Challenges

This new fund follows two earlier phases: the first, launched in 2014 with initial financing of 138.7 billion yuan, and the second in 2019, which raised 204.1 billion yuan. Despite previous successes, such as fostering companies like Yangtze Memory Technologies Corp and ChangXin Memory Technologies, the industry has encountered significant challenges. US export controls have notably impeded access to advanced chip-making equipment, affecting production yields and cost efficiency.

The fund’s past management faced corruption issues, with former president Ding Wenwu under investigation since July 2022. The current president, Zhang Xin, has taken over, emphasizing transparency and effective investment.

Focus Areas and Future Prospects

The fund’s priorities include capacity expansion, equipment, materials, and advanced packaging. Nevertheless, bridging the technology gap with global leaders remains a challenge due to ongoing export restrictions.

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