Beijing, September 27, 2023 — China’s ambitious initiative to bolster its semiconductor sector through the third iteration of the China Integrated Circuit Industry Investment Fund, popularly known as the “Big Fund,” has hit early-stage roadblocks as it strives to achieve its monumental Rmb300bn ($41bn) goal. This predicament has been attributed to the challenging economic landscape, according to insights from individuals familiar with the matter.
Greenlit by the Chinese capital, this fund has played a pivotal role in driving the expansion of the chip industry since its inception in 2014. It has also been instrumental in President Xi Jinping’s drive for technological self-reliance.
In its initial two phases, the Big Fund successfully secured Rmb139bn and Rmb200bn, respectively. During this time, it actively supported leading Chinese semiconductor champions while channeling significant investments into research and development initiatives.
However, the Ministry of Industry and Information Technology, spearheading this initiative, is facing hurdles in raising the newly set target from local governments and state-owned enterprises. These stakeholders are grappling with the economic slowdown, as indicated by sources familiar with the situation.
In the past, the Ministry of Finance played a crucial role, contributing over 44 percent and nearly 15 percent of the capital in the first two phases. The rest was shared by local governments and state-owned enterprises, with entities like China Telecom actively encouraged to utilize their expertise in identifying potential national champions.
Furthermore, a shortage of suitable candidates to support this fresh injection of funds has contributed to a lukewarm response. Industry insiders and analysts have cited growing passivity in investment decisions due to U.S. restrictions on the chip industry’s access to cutting-edge technology.
The fund had already adopted a more cautious stance during its second phase. Over 30 percent of the capital raised was earmarked for follow-on funding for companies previously backed in the initial phase, according to data analyzed by the Financial Times from Wind.
Moreover, a prolonged anti-corruption investigation into the Big Fund, lasting over a year, has cast a shadow over its investment pace and market confidence. Since July of the previous year, more than ten executives associated with the fund have been subject to investigations, leading to a slowdown in investment activities.
Two sources with knowledge of the fund’s inner workings have disclosed that the capital raised in the second phase remains underutilized.
The struggles of China’s “Big Fund” to meet its ambitious semiconductor sector funding goals are indicative of the complex challenges China faces in achieving self-sufficiency in advanced technology industries. While the fund has been instrumental in advancing the country’s semiconductor capabilities, it now faces headwinds from a more cautious investment environment, economic uncertainties, and external restrictions.
The reluctance of local governments and state-owned enterprises to contribute significantly to the fund underlines the economic pressures they are navigating. Additionally, the shortage of suitable candidates for investment underscores the impact of U.S. restrictions on China’s access to vital semiconductor technologies.
The ongoing anti-corruption investigation further erodes confidence in the fund’s operations. For China to succeed in its tech ambitions, it must address these challenges, foster innovation, and navigate the complex geopolitics surrounding the semiconductor industry. The “Big Fund” remains a critical tool, but its path forward is fraught with obstacles that require careful navigation.
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