China raises $47bn for chip industry in drive for self-sufficiency

China has concluded its largest funding round to date in support of its embattled semiconductor industry, with the so-called Big Fund raising Rmb344bn ($47bn) to aid President Xi Jinping's self-sufficiency drive in the face of US efforts to restrict the country’s access to the latest technology. 

The third round of the fund, officially called the National Integrated Circuit Industry Investment Fund Phase III, is China’s largest pool of capital to be targeted at seeding companies and technologies to overcome what Beijing refers to as “chokepoints” for its chip industry. It has been assembled from contributions from the finance ministry, local governments, state-owned enterprises and, for the first time, state-owned banks.

It comes amid an escalating tech race with the west and echoes efforts in Washington and European capitals to build up their own domestic semiconductor industries. The US has extended billions of dollars in subsidies for groups to build chip plants on American soil. 

The Big Fund previously raised Rmb139bn and Rmb200bn in 2014 and 2019 and has a record of supporting Chinese chip champions and propelling the industry’s growth.

People familiar with the matter have said the third fund will target Chinese makers of equipment for chip factories, after the previous two rounds ploughed capital into semiconductor manufacturing. 

News of the funding lifted a swath of semiconductor stocks in China. The shares of SMIC, China’s top chipmaker, jumped 7 per cent in Hong Kong, while rival Hua Hong rose nearly 5 per cent. Shares in Chinese etching equipment maker Naura rose more than 5 per cent.   

After Beijing approved a third round for the Big Fund, the Ministry of Industry and Information Technology (MIIT), which leads the initiative, initially struggled to raise capital from local governments and state-owned enterprises reeling from an economic downturn.

This led to the country’s state-owned banks also being approached for funding. China’s six biggest state banks — including the largest, Industrial and Commercial Bank of China — are now on board as shareholders, according to the government-run corporate registry. The six lenders hold a combined 33.1 per cent stake in the third chip fund, contributing capital of Rmb114bn. 

The fund has 19 shareholders, with the finance ministry’s contribution of about Rmb60bn making it the largest one, with a 17.4 per cent stake. China Development Bank Capital, affiliated with the country’s top policy bank, is the second largest, with a 10.5 per cent stake. State-owned giants such as China National Tobacco Corporation and China Telecom also invested in the new fund.

The Big Fund is chaired by Zhang Xin, an official who previously worked as a first-level inspector in the MIIT’s planning department. Zhang was promoted to the fund last year after a tough anti-corruption investigation took down its previous leader, Ding Wenwu, and more than 10 other executives linked to the fund.