China Establishes $47 Billion State-backed Semiconductor Fund to Boost Chip Industry and Counter US Efforts

China Establishes $47 Billion Semiconductor Fund to Boost Chip Industry Amid US Restrictions

China has made a bold move in the semiconductor industry by establishing a massive new state-backed fund worth 344 billion yuan or $47 billion. The fund, known as the China Integrated Circuit Investment Fund Phase III, aims to ramp up China’s chip industry in response to US efforts to limit its access to advanced chip technology.

The Ministry of Finance holds a 17% stake in the fund, with other major stakeholders including a subsidiary of the state-owned National Development Bank and a Shanghai municipal government investment company. Additionally, five of China’s largest banks are also investors in the fund.

Under the “Made in China 2025” initiative, the fund was launched in 2015 as a financing vehicle to promote high-tech industrial development. It has already provided financial support to major chip manufacturers in China, such as Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor.

The fund is expected to focus on AI-related semiconductors and manufacturing equipment in its third phase. It aims to support research and development projects and assist Chinese semiconductor companies in transitioning from international to domestic suppliers for key materials to reduce reliance on foreign suppliers and potentially weaken the effectiveness of future US restrictions.

This aggressive move by China comes as the US tightens export controls on advanced chips and fabrication tools to hinder China’s tech advancements. The US implemented comprehensive export controls in 2022 and updated them in 2023 to address loopholes that compromised their effectiveness.

Secretary of Commerce Gina M. Raimondo stated in 2023 that these updated rules aim to increase the effectiveness of controls and confront the threats to national security posed by China’s military-civil fusion strategy.

With the establishment of the new semiconductor fund, China is positioning itself to become a major player in the global chip industry and reduce its dependence on foreign technology, especially in response to US restrictions.