China’s national semiconductor fund has trimmed its holdings in the country’s biggest chip maker, cashing out from earlier investments, as Beijing makes tactical adjustments to support the country’s semiconductor firms. The China National Integrated Circuit Industry Investment Fund, initiated by the central government in 2014 with a registered capital of US$15.5 billion, sold 45 million shares of Semiconductor Manufacturing International Corporation (SMIC) last Friday at HK$26.2 per share and another block of 55 million shares at HK$25.6 per share on Monday, bagging roughly HK$2.6 billion in total from its investment in China’s leading foundry, according to corporate filings released on Thursday at the Hong Kong stock exchange. The fund retains an 8.93 per cent stake in SMIC after the sales. The fund also sold 4.17 million shares in Shanghai-listed IC design firm GigaDevice Semiconductor (GD), representing 1 per cent of the company’s total equity base, according to a GD stock filing. GD, backed by Singapore sovereign wealth fund GIC, designs memory and micro-controller chips. SMIC cements its role as Beijing’s best hope in chips despite US restrictions An executive at GD, who declined to be named as he is not authorised to speak to the media, said the divestment does not mean that the fund has turned bearish on the company. “Given the Fund’s special status, its investment decisions have more connection to promoting the entire sector as per the country’s strategic development plan,” he added. Meanwhile in China’s onshore stock market, the fund – known in the industry as the Big Fund – has been trimming its stake in Hangzhou Changchuan Technology Ltd, a semiconductor test equipment maker, and chip packaging firm China Wafer Level CSP Co, according to corporate announcements. Analysts and industry insiders have downplayed the share sales, describing the cash-out as a “normal investment decision” with the Big Fund still committed to supporting China’s semiconductor industry. “We see this as a market-driven decision based on the investment horizon of the fund,” said Xie Ruifeng, senior analyst at Shanghai-based semiconductor consulting firm ICWise. “The fund will continue its support of the semiconductor industry’s development.” The move comes at a time when China’s domestic semiconductor industry – including design, manufacturing, packaging and testing – is booming amid a national drive to develop greater self-sufficiency in “choke-point technologies” as the US and China square off over emerging technologies. The value-added industrial output in China’s semiconductor industry grew by more than 60 per cent in the first quarter from the same period a year earlier, higher than China’s first-quarter industrial output of 24.5 per cent, official data showed on Friday. “We see ardent market interest in the semiconductor sector, [as such] mature design firms no longer need support from the Fund” Xie said. “This is unlike 2014 and 2015, when investors in the semiconductor industry were hard to come by.” The fund, which raised US$21.8 billion from state-owned banks and enterprises for its first financing round, primarily focuses its investments on chip design and manufacturing, and has been a key backer of firms such as SMIC and Shanghai Huahong Grace Semiconductors Manufacturing Company. Beijing’s plan for a government-backed fund to support the local semiconductor industry has, in general, worked out, and US President Joe Biden last week decided to borrow a page from China’s strategy by earmarking US$50 billion to support semiconductor investment on American soil. While Phase I of the fund is selling shares, Phase II of the fund – created in 2019 with a registered capital of 204 billion yuan – has been investing aggressively in the semiconductor industry. Xie said the second phase of the fund is expected to continue to focus on asset-heavy semiconductor manufacturing and equipment and materials, where China still lags behind global peers and is heavily dependent on foreign exports. In 2020, there were 413 private equity deals in China’s semiconductor industry, totaling a record 140 billion yuan, nearly four times more than total investment of about 30 billion yuan in 2019, according to data from research firm EqualOcean.
