China launches $47 billion semiconductor fund to counter US sanctions
China has launched a massive $47 billion fund, the largest in its history, to bolster its semiconductor industry and establish a local supply chain. This fund, equivalent to 344 billion yuan, is the third phase initiated by the China Integrated Circuit Industry Investment Fund. It's worth noting that this amount is twice the total funds raised in the previous phases in 2014 and 2019.
Major stakeholders and implications of US restrictions
The fund was officially registered on Friday, as reported by the National Enterprise Credit Information Publicity System, a government-run credit information agency. The Ministry of Finance in China is the largest shareholder of the fund with a 17% stake. Five major Chinese state-owned banks each hold approximately 6% stakes. This funding initiative comes amidst several rounds of US restrictions on the export of advanced semiconductors and chip-manufacturing equipment to China, which have significantly impacted shipments of artificial-intelligence chips.
Global competition intensifies for chip self-sufficiency
As Bernstein analyst Qingyuan Lin stated, "The competition has intensified as all countries are trying to achieve [chip] self-sufficiency." In response to these restrictions and the growing global demand for advanced chips, major economic powers have been rolling out industry support packages. For instance, last month, the US granted up to $6.4 billion to Samsung Electronics and up to $6.6 billion to Taiwan Semiconductor Manufacturing Co., for factory construction in the US as part of the $53 billion Chips Act.
China's semiconductor industry responds to global demand
Chinese chip manufacturers have been ramping up investment in domestic supply chains and advanced chip development. SEMI, a global industry body representing chip manufacturers and suppliers, estimates that Chinese companies will initiate operations of 18 chip manufacturing projects this year. This move is expected to expand China's chip-making capacity by 12%. Most new Chinese chip factories are focusing on older-generation chips that aren't affected by current US restrictions.
China's share in global foundry business and future prospects
Despite these developments, China's share of the global foundry business remains relatively low. Semiconductor Manufacturing International Corp. and Hua Hong Semiconductor, two of China's largest chip foundries, together accounted for around 8% of the global foundry market share in Q1. In contrast, Taiwan Semiconductor Manufacturing Co. held a dominant 62% share, according to Counterpoint. Analysts believe that this new fund could help companies catch up in advanced chip-making capabilities and strengthen their mature-node production.
Fund's potential impact and market response
The fund may function like an asset management firm, taking equity stakes in both public and private chip companies. "It could assume the lead investor role in many instances in order to support a higher valuation and attract other state-owned enterprises," said Morningstar analyst Phelix Lee. Chinese semiconductor shares rose broadly on Monday with SMIC adding 7.4% and Hua Hong gaining 11.5%.
