China’s National Integrated Circuit Industry Investment Fund, also known as ‘the Big Fund,’ has closed its third state-backed investment fund, known as Big Fund III, to bolster its semiconductor industry and achieve chip sovereignty. The fund, valued at 344 billion yuan ($47.5 billion), exceeds the size of both Big Fund I (2014-2019) and Big Fund II (2019-2024). This move demonstrates China’s commitment to reducing reliance on other nations for semiconductor production and aligns with its goal of achieving self-sufficiency.
The chip war between China and the West is not one-sided. While the U.S. and Europe aim to reduce their dependence on China, China also has concerns about its own supply chain. Taiwan, in particular, is a chief concern for chip manufacturing. China gaining control of Taiwan’s production capabilities would put the U.S. and its allies at a significant disadvantage, as Taiwan Semiconductor Manufacturing Co. (TSMC) currently produces around 90% of the world’s most advanced chips. However, sources suggest that TSMC and Netherlands-based ASML have ways to disable chip-making machines in the event of a Chinese invasion of Taiwan.
While China dominates the production of legacy chips (found in cars and appliances), producing around 60% of them, the chip war extends to both legacy and advanced chips, with varying results. U.S. chip exports have dropped due to U.S. policy, but the commercial struggles of Western chip players may be worth it if they can prevent China from developing and accessing more advanced chips as quickly as its competitors.
Restrictions on China could have significant impacts, such as AI firms losing access to Nvidia’s cutting-edge chips or hindering China’s champion semiconductor manufacturer, SMIC, from producing its own chips. This is evident in the size of Big Fund III, which indicates that China is feeling the pressure.
Big Fund III is now larger than the $39 billion in direct incentives the U.S. government plans to dedicate to chip manufacturing under the CHIPS Act, although the whole federal funding envelope adds up to $280 billion. The EU Chips Act, valued at €43 billion, and South Korea’s $19 billion support package pale in comparison. The news of Big Fund III has caused a rally in stock from Chinese semiconductor companies that stand to benefit from this capital injection.
However, Beijing’s past investments in the semiconductor industry have not always paid off, with leadership frustrated by a failure to develop semiconductors that could replace U.S. circuitry. Additionally, the former boss of the Big Fund was removed and investigated for corruption. Making significant changes to semiconductor manufacturing is a slow process, but there are interesting developments happening in Europe and the U.S. For example, French deep tech startup Diamfab is working on diamond semiconductors that could support the green transition, particularly in the automotive industry.
In conclusion, China’s closure of Big Fund III reflects its determination to reduce reliance on other nations for semiconductor production and achieve chip sovereignty. The chip war between China and the West is a two-way battle, with each side seeking to reduce dependence on the other. The size of Big Fund III highlights China’s concerns and the potential impact of restrictions on its semiconductor industry. While China’s investments have not always been successful, there are also exciting developments happening in Western countries.