China's 344 billion yuan chip fund switches tack to fight US curbs: sources
[BEIJING] China's main chip investment fund is planning to focus on the country's key shortcomings in sectors like lithography and semiconductor design software, adjusting its approach to better overcome US efforts to stop its technological advances.
The third phase of the state-backed National Integrated Circuit Industry Investment Fund, better known as Big Fund III, will focus on backing local companies and projects in areas considered bottlenecks to technological advances, people familiar with the matter said. That includes lithography systems, where Dutch firm ASML Holding NV dominates, and chip design tools, an arena controlled by US companies Cadence Design Systems and Synopsys
The new vehicle has so far secured only a portion of the 344 billion yuan (US$48 billion) of capital it originally sought when first created more than a year ago as Beijing is being more cautious with its semiconductor bets, according to the people, though the shortfall should be temporary. The Big Fund III plans to hold its investments for a longer period compared to the two previous phases, they said, declining to be named discussing a private government initiative.
A yearslong US-led campaign to curb China's access to chips, equipment and software has appeared to stall Beijing's ambitions in semiconductors, essential to creating cutting-edge AI. Chinese President Xi Jinping has declared the elimination of such choke-points a top priority, particularly as local artificial intelligence players including DeepSeek and Alibaba Group Holding are trying to compete on the global stage with deep-pocketed US rivals such as OpenAI in a critical field.
China's Big Fund for years sprinkled capital throughout most sectors of the semiconductor industry, from leading manufacturers such as Semiconductor Manufacturing International Corp to small design companies. It's now adopting a more targeted approach, after massive investments during the fund's first two phases failed to deliver real breakthroughs beyond a surprisingly sophisticated Huawei Technologies mobile processor in 2023.
Big Fund III is preparing to make its first major investments in coming months, the people said. Part of its directive is to spur industry consolidation, through deal-making or otherwise, they added.
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If the new vehicle achieves the scale it originally aimed for, it will be China's largest-ever semiconductor fund, bigger than the previous two phases combined. It counts China's Ministry of Finance, state-owned banks and several local government-backed funds as limited partners, according to corporate data provider Tianyancha. It's created three sub-funds to help identify investment targets throughout the supply chain, the people said.
China's Ministry of Finance did not respond to a faxed request for comment. Messages to an email for Big Fund III listed on Tianyancha went unanswered.
It's unclear whether the fund's managers have identified potential investment or deal targets. Some of the biggest names in China's chipmaking equipment space include Shanghai Zhangjiang High-Tech Park Development, which holds an 11 per cent stake in privately-held lithography machine maker Shanghai Micro Electronics Equipment Group
Chinese media outlets have also speculated that Huawei eventually wants to build its own lithography machines, required to make cutting-edge AI chips that can rival Nvidia Corp.'s offerings. Empyrean Technology is one of Chinese's best hopes of competing with leading global chip design software providers including Cadence and Synopsys.
China's national chip fund was inaugurated about a decade ago with roughly 100 billion yuan in capital, and has since spearheaded the state's investments in all things semiconductors. It's serving as an important signal of Beijing's policy imperatives, as well as a scorecard for government endorsement.
In recent years though, it's faced setbacks in achieving its mission, both internal and external. The US banned Nvidia from selling its best AI accelerators to China, while allies such as Japan and the Netherlands have joined the campaign to ringfence the country's tech sector. Stung by a lack of scientific achievement, Beijing initiated a series of anti-graft probes into top chip industry officers in 2022. BLOOMBERG
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