China plans to establish a $40 billion fund for semiconductor toolmakers.
September 8, 2023

China plans to establish a $40 billion fund for semiconductor toolmakers.

A new fund being prepared by China will have $40 billion to invest in companies that develop and manufacture semiconductor wafer manufacturing equipment. It will be one of the most significant efforts of the China Investment Fund for the Integrated Circuit Industry, also known as the Big Fund, Reuters.asm reports.

The report claims the new fund could be the most important for China as it focuses on the country's fundamental capabilities to make chip-making tools. In recent years, Chinese chipmakers have lost access to more or less sophisticated wafer production equipment from American, Dutch and Japanese companies, which significantly limits the development of Chinese semiconductor champions such as SMIC and YMTC.

While China's SMIC and YMTC have competitive logic and 3D NAND manufacturing technologies, they need specific tools made in the US, the Netherlands, and Japan to use them. Without access to equipment made by ASML, Applied Materials and Tokyo Electron, Chinese companies will not be able to develop further, so China is ready to help local semiconductor tool makers.

China is preparing record funds

China launched similar investment funds in 2014 and 2019, but on a smaller scale, raising 138.7 billion yuan and 200 billion yuan, respectively. The new fund surpasses these amounts, targeting an ambitious 300 billion yuan ($41 billion), underscoring its importance.

As for financing, China's Ministry of Finance has pledged to provide a significant portion of the fund, around 60 billion yuan. However, details of other potential collaborators remain under wraps. Entities such as China Development Bank Capital, China National Tobacco Corporation and China Telecom have historically supported the Grand Fund's initiatives.

Regarding the management and supervision of the new fund, the Great Fund is considering the engagement of at least two institutional entities. Although under investigation as of 2021, SINO-IC Capital is expected to remain a key player in managing the fund. In addition, discussions have been initiated with China Aerospace Investment, the investment arm of the state-owned enterprise, for potential management roles.

A necessary investment

The geopolitical landscape significantly influences China's increased efforts in the semiconductor domain. President Xi Jinping has repeatedly emphasized the critical importance of the nation becoming self-reliant in the semiconductor sector. This urgency has increased since the US, along with allies such as Japan and the Netherlands, imposed tight restrictions on China's access to advanced chip-making resources, citing security and defense concerns.

Despite huge investments from the Grand Fund in the past, China's position in the global semiconductor arena, especially in advanced logic chips, remains elusive.