How China’s ‘Big Fund’ is helping the country catch up in the global semiconductor race
Low profile fund is leading national effort to catch up in global semiconductor industry by raising funds and backing semiconductor start-ups and research and development
The recent move by the US government to ban the sale of American technology to Chinese telecommunications equipment maker ZTE Corp has exposed the soft underbelly of China’s technological ambitions. At the centre of the technology gap is semiconductors, the integrated circuits that go into and power everything from smartphones to smart speakers to the most advanced super computers and driverless cars.
In light of the growing tensions between the US and China’s trade and economic relationship, China has sought to accelerate its efforts to gain self-sufficiency and parity in semiconductors. Back in 2014, the central government set up the China National Integrated Circuit Industry Investment Fund.
This fund is so low profile that it does not have its own website. But it is leading the national effort to catch up in the global semiconductor industry by raising funds and backing semiconductor start-ups and research and development. The goal: help China become self-sufficient in chips that are used by the country’s vast manufacturing supply chain.
China makes more than 90 per cent of the world’s smartphones, 65 per cent of personal computers and 67 per cent of smart televisions, according to estimates from Bernstein Research. But it has had to buy much of the chips that go into these devices from abroad. Annual chip imports by China have risen to more than US$200 billion since 2013 and reached US$260 billion last year.
Here are a few things to know about the state-backed investment entity known as the “Big Fund”:
1. What is the China Integrated Circuit Industry Investment Fund?
The Big Fund represents the Chinese government’s primary vehicle to develop the domestic semiconductor supply chain and become competitive with chip industry leader the US.
It was set up to invest in chip manufacturing, boost industrial production, and promote mergers and acquisitions, according to a statement dated October 14, 2014 on the website of the Ministry of Industry and Information Technology (MIIT). Wang Zhanpu, a former director of finance at the MIIT, has chaired the fund since its establishment.
The fund operates as a corporate entity under the MIIT and the Ministry of Finance. The China Development Bank Capital, China Tobacco, E-Town Capital, China Mobile, Guosheng Group, China Electronics Technology Group Corp, Beijing Unis Communications Technology Group and Sino IC Capital are among the pioneer batch of investors in the fund.
2. How big is the fund?
It raised 138.7 billion yuan (US$21.8 billion) in its first financing round in 2014, according to the MIIT.
The Ministry of Finance is the Big Fund’s largest stakeholder with a 36.74 per cent share. China Development Bank Capital has a 22.29 per cent share, followed by China Tobacco with an 11.14 per cent share, according to a filing by Shenzhen-listed Nantong Tongfu Microelectronics in February this year. The fund became a minority investor in the company that same month.
3. Which government policies support the Big Fund?
China’s State Council published the “National Integrated Circuit Industry Development Guidelines” in June 2014, which marked the country’s official commitment to accelerate the development of the domestic semiconductor industry.
It set a near-term goal of growing annual domestic semiconductor revenue from 2015 to 2020, and become a global leader in all segments of the semiconductor supply chain by 2030.
Towards that end, the policy outlined the creation of an industry investment fund to drive semiconductor capacity and push forward a restructuring in the domestic chip industry.
In 2015, the central government introduced its “Made in China 2025” plan, in which semiconductors and related equipment are under the policy’s “new information technology” sector.
4. What are the Big Fund’s latest initiatives?
Amid calls for greater investment in “core technology” by Chinese technology companies, the fund is set to be more active than before, according to recent reports that cited unnamed sources.
The central government aims to raise as much as 200 billion yuan to invest in domestic chip companies and accelerate its ambition of building a world-class semiconductor industry, Bloomberg reported in March.
It said the new funding round will invest across the semiconductor supply chain, from design and manufacturing to chip testing and packaging, potentially benefiting domestic hi-tech players from Huawei Technologies and ZTE to Tsinghua Group.
The Big Fund, meanwhile, was separately closing in on a 120 billion yuan investment for a second fund to support the domestic chip sector, a Reuters report said. It said the second fund had been in the pipeline before recent US-China trade spat and the export ban against ZTE.
China, which is heavily dependent on semiconductor imports, accounted for more than 60 per cent of annual global chip sales, according to data from PwC. Semiconductors represent one of the top exports of the US, along with aircraft, refined oil and cars.