China plans to raise funds of up to US$31.6 billion to fuel chip industry

China’s chip strategy aims to reduce a reliance on some US$200 billion of annual semiconductor imports, which the government fears undermines national security and hampers the domestic technology sector

PUBLISHED : Thursday, 01 March, 2018, 3:45pm
UPDATED : Monday, 29 October, 2018, 8:39pm

China’s government aims to raise as much as 200 billion yuan (US$31.6 billion) to invest in home-grown chip companies and accelerate its ambition of building a world-class semiconductor industry, according to people familiar with the matter.

The state-backed China Integrated Circuit Industry Investment Fund Co is in talks with government agencies and corporations to raise at least 150 billion yuan for its second fund vehicle, but is angling for up to 200 billion yuan, said the people, who asked not to be identified because that plan has not been publicised.

The China IC Fund intends to begin deploying capital in the second half of this year, they said.

The firm will again invest in a wide range of sectors, from processor design and manufacturing to chip testing and packaging.

That could potentially benefit Chinese industry leaders, from telecommunications equipment makers Huawei Technologies and ZTE Corp to state-owned enterprise Tsinghua Holdings.

The first round of money had gone toward more than 20 listed companies, including ZTE and contract chip maker Semiconductor Manufacturing International Corp, the people said.

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China is trying to reduce a reliance on some US$200 billion of annual semiconductor imports, which it fears undermines national security and hampers the development of a thriving technology sector.

The country envisions spending about US$150 billion over 10 years to achieve a leading position in design and manufacturing, an ambitious plan that United States executives and officials have warned could harm American interests.

While officials have suggested their initial vision of attaining pole position in chips may have been unrealistic, the government remains intent on finding ways to reduce imports as the world’s largest consumer of semiconductors.

The secretive China IC Fund – established in 2014 with about 140 billion yuan of initial capital – plays a key role by steering overall investment and strategy.

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For its second fund, the state-backed outfit will again turn to central and local government agencies, as well as the government-backed enterprises that contributed previously, the people said.

The envisioned ramp-up in domestic investment comes as foreign scrutiny of Chinese-led acquisitions intensifies.

The Trump administration blocked a US$1.3 billion deal for US chip maker Lattice Semiconductor Corp from China-backed Canyon Bridge Capital Partners last year, citing security concerns.

In 2016, Fujian Grand Chip Investment Fund dropped its proposed 670 million (US$818.3 billion) takeover of German semiconductor equipment supplier Aixtron after being blocked by regulators in both the US and Germany over security concerns.

The Ministry of Industry and Information Technology did not respond to a faxed request for comment.