China is pumping another 344 billion yuan ($47.5 billion) into a state-backed semiconductor industry investment fund to drive its chip industry development amid an escalating technology race with the United States.
The third phase of National Integrated Circuit Industry Investment Fund has been set up with investments from 19 state-owned investors led by the Ministry of Finance, business registration records show. The fund will engage in equity investment and asset management in the integrated circuit industry
The National Integrated Circuit Industry Investment Fund, better known as the Big Fund, is a central part of Beijing’s blueprint to develop a semiconductor industry to counter Washington’s export controls against Chinese tech companies such as Huawei Technologies Co. Ltd.
The initial phase of the fund was set up in 2014 with capital amounting to 138.7 billion yuan from deep-pocketed state investors. The second phase raised 204 billion yuan in 2019.
The Big Fund III is being launched as the Biden Administration intensifies restrictions on China’s access to advanced technologies.
The finance ministry holds 17.44% of the fund, followed by 10.47% owned by China Development Bank Capital Co. Ltd. and 8.72% of Shanghai Guosheng Group Co. Ltd. Several state-owned banks are among the investors.
China Construction Bank (CCB), one of the big four state-owned lenders, said on Monday it has signed up to invest 21.5 billion yuan that will form 6.25% of the Big Fund III. The money will be fully paid within 10 years of the fund’s registration, said the bank.
The Big Fund III aims to guide social capital to increase multi-channel financing support for the integrated circuit industry, focusing on investments across the entire integrated circuit industry chain, said the CCB in a filing.
The proposal to set up the Big Fund in 2014 was unprecedented in China, adopting market-oriented operations to attract capital from large companies, financial institutions and private investors to support the semiconductor industry.
Before that, China’s state support for the semiconductor industry was primarily carried out through the national major technology projects.
The fund adopted a two-tiered management structure in which its board set strategy and approved major projects while fund manager Sino IC Capital Co. Ltd. carried out investments and managed the money. Sino IC Capital is 45% owned by China Development Bank, the policy lender.
Over the years, the Big Fund has built up a sprawling portfolio through direct and indirect investments, backing the growth of industry leaders such as Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor Ltd.
However, a string of corruption probes involving fund executives starting back in 2021 brought the Big Fund and its massive investment web under scrutiny, leading policymakers to try a reset of the investment entity. The probes have ensnared several officials in the Big Fund’s affiliated businesses and companies it invested in.
In July 2022, Ding Wenwu, former president of the Big Fund, came under investigation. Ding’s downfall followed Lu Jun, former president of Sino IC Capital, was investigated for corruption by the nation’s top anti-graft watchdog.
In March 2023, Zhang Xin, who served as a senior inspector at the planning department of the Ministry of Industry and Information Technology (MIIT), replaced Ding as president of the Big Fund.
Following the anti-graft crackdown, the new phase of the Big Fund will adopt a more prudent investment approach, several semiconductor industry investors told Caixin.
“The Big Fund III should target critical bottlenecks in the semiconductor industry rather than mature sectors. It should focus on long-term, patient investments to promote industry growth,” one investor said.
Contact reporter Han Wei (weihan@caixin.com)
