China's $47 billion semiconductor fund focuses on chip sovereignty

China has signed a third state-backed investment fund to strengthen its semiconductor industry and reduce dependence on other countries for both use and production of wafers – prioritizing what is called chip sovereignty.

The Chinese National Integrated Circuit Industry Investment Fund, also known simply as 'the Big Fund', had two previous years: Big Fund I (2014 to 2019) and Big Fund II (2019 to 2024). The latter was significantly larger than the former, but Big Fund III is bigger than both, at 344 billion yuan, or about $47.5 billion. public records revealed.

Exceedance expectationsand following Huawei's recent one greater dependence As for Chinese suppliers, the size of Big Fund III confirms the country's goal of becoming self-sufficient in semiconductor manufacturing. It is also a reminder that the chip war between China and the West goes both ways.

The US and Europe are not alone in wanting to reduce their dependence on their perennial technology rival. China also has reasons to worry about its supply, and it is not just exports from the US and its partners that at risk.

When it comes to chip production, Taiwan is the main concern. If China takes control of its manufacturing capabilities, the US and its allies would be greatly disadvantaged; Taiwan Semiconductor Manufacturing Co. (TSMC) currently makes about 90% of the world's most advanced chips.

On the other hand, Bloomberg heard from sources that Netherlands-based ASML and TSMC have ways to shut down chip making machines in the event that China invades Taiwan.

As for China, it produces some 60% of the older chips – the type found in cars and home appliances, US Commerce Secretary Gina Raimondo recently explained.

The chip war extends to both older and advanced chips, with uneven results.

The Chinese official story is that US policy is counter productivewith exports from leading US chip players declining, and others share that opinion.

Either way, this puts a company like Nvidia on a fine line “between sustaining the Chinese market and dealing with tensions in the US,” Hebe Chen, a market analyst at IG, recently said. Reuters. The company made three chips tailor-made for China after U.S. sanctions stopped it from exporting its most advanced semiconductors, but competition forced it to adopt a lower price than it might have wanted.

However, it could also be argued that Western chip players' commercial battle could be worth the cost if the country can prevent China from developing and gaining access to more advanced chips as quickly as its competitors.

There are signs that restrictions could hit China where it hurts; for example, if the country's AI companies lose access to Nvidia's cutting-edge chips, or if it becomes harder for champion SMIC to produce its own chips.

Big Fund III itself shows that China is feeling the heat. According to reportsthe money will go to large-scale production of wafers, like previous funds, but also to making High Bandwidth Memory chips. These are known as HBM chips and are used in AI, 5G, IoT and more.

However, its size is the biggest story.

Supported by six major state-owned banksBig Fund III is now bigger than the $39 billion in direct stimulus that the US government will spend on chip production as part of the CHIPS Act. However, the entire federal funding envelope amounts to $280 billion.

At 43 billion euros, the EU chips bill seems small compared to both, as does South Korea's $19 billion aid packageand the markets have probably taken notice.

The news of Big Fund III caused a collection approximately shares of Chinese semiconductor companies that will benefit from this new capital. However, Bloomberg noted that Beijing's past investments have not always paid off.

In particular, “China's top leadership was frustrated with a years-long inability to develop semiconductors that could replace American circuits. In addition, the former boss of the Big Fund was removed and investigated due to corruption,” the media reported.

Even without corruption, implementing major changes in semiconductor manufacturing is a slow process. This also takes time in Europe and the US, but there are interesting new developments.

For example, French deep-tech startup Diamfab is working on diamond semiconductors that can support the green transition, especially in the automotive industry. That will take a few more years, but it's the kind of Western innovations that could be just as interesting to follow as whatever Chinese legacy players are doing.

Additional reporting by Rita Liao.

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