China has launched a third state-supported investment fund to enhance its semiconductor sector and diminish dependency on foreign nations for using and producing wafers — emphasizing what is known as chip sovereignty.
China’s National Integrated Circuit Industry Investment Fund, commonly referred to as ‘the Big Fund,’ had two earlier iterations: Big Fund I (2014 to 2019) and Big Fund II (2019 to 2024). The latter was considerably larger than the former, but Big Fund III surpasses both at 344 billion yuan, or about $47.5 billion, public filings disclose.
Exceeding expectations, and following Huawei’s recent increased reliance on Chinese suppliers, the size of Big Fund III underscores the country’s goal to achieve self-reliance in semiconductor production. It also serves as a reminder that the chip war between China and the West is mutual.
The U.S. and Europe are not alone in their desire to reduce dependence on their consistent tech competitor. China also has concerns about its supply, and it’s not only exports from the U.S. and its allies that are at risk.
Taiwan is the primary concern in chip manufacturing. If China were to take control of its production capabilities, it would place the U.S. and its partners at a significant disadvantage as Taiwan Semiconductor Manufacturing Co. (TSMC) currently produces approximately 90% of the world’s most advanced chips.
On the contrary, Bloomberg learned from sources that Netherlands-based ASML and TSMC have strategies to disable chip-making machines if China invades Taiwan.
Meanwhile, China is producing around 60% of legacy chips — those found in cars and appliances, U.S. Commerce Secretary Gina Raimondo recently mentioned.
The chip war spans both legacy and advanced chips, yielding uneven outcomes.
The Chinese official stance is that U.S. policy is backfiring, as exports from major U.S. chip manufacturers are declining, and others share that opinion.
Regardless, this places companies like Nvidia in a difficult position, balancing “between maintaining the Chinese market and navigating U.S. tensions,” Hebe Chen, a market analyst at IG, recently told Reuters. Nvidia designed three chips for China after U.S. sanctions barred it from exporting its most advanced semiconductors, but competition forced it to set a lower price than desired.
However, it could be argued that the commercial challenges faced by Western chip companies may be worth it if they can slow China’s progress in developing and acquiring more advanced chips compared to its competitors.
Signs suggest that restrictions could significantly impact China; for example, if the country’s AI firms lose access to Nvidia’s advanced chips, or if it hampers SMIC’s ability to produce its own semiconductors.
Big Fund III itself indicates that China is under pressure. According to reports, the funds will go towards large-scale wafer production as previous funds did, but also towards developing High Bandwidth Memory chips. Known as HBM chips, these are used in AI, 5G, IoT, and more.
Its magnitude, though, is the most telling.
Supported by six major state-owned banks, Big Fund III is now larger than the $39 billion in direct incentives that the U.S. government will allocate to chip manufacturing as part of the CHIPS Act. However, the entire federal funding total adds up to $280 billion.
At €43 billion, the EU Chips Act appears small compared to both, as does South Korea’s $19 billion support package, and markets likely took notice.
The announcement of Big Fund III led to a surge in the stock prices of Chinese semiconductor companies expected to benefit from this new capital. However, Bloomberg noted that Beijing’s past investments haven’t always yielded the desired results.
In particular, “China’s top leadership was disappointed with the prolonged failure to develop semiconductors that could replace U.S. components. Additionally, the former head of the Big Fund was ousted and investigated for corruption,” the media outlet pointed out.
Even without corruption, implementing significant changes to semiconductor manufacturing is a lengthy process. In Europe and the U.S., this also takes time, but there are interesting new developments.
French deep tech startup Diamfab, for example, is working on diamond semiconductors that could aid in green transition, especially in the automotive industry. Though still a few years away, it is the type of Western innovation that may be as fascinating to observe as the efforts of Chinese legacy players.
Additional reporting by Rita Liao.
