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China Amplifies Semiconductor Ambitions with $40 Billion State Fund"

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China is doubling down on its ambition to bolster its semiconductor sector by introducing a formidable state-backed investment fund of approximately $40 billion. This move, spearheaded by the China Integrated Circuit Industry Investment Fund, also dubbed the Big Fund, exceeds the ambitions of its predecessors initiated in 2014 and 2019 which garnered 138.7 billion yuan and 200 billion yuan respectively. This latest endeavor, sanctioned by Chinese authorities in recent months, is aimed at fostering self-sufficiency in semiconductor manufacturing, a sector identified as a priority by President Xi Jinping. This strategic shift is propelled further by a series of export controls and sanctions implemented by the U.S and its allies, curbing China's access to advanced chipmaking equipment amidst concerns over potential military applications.

Notwithstanding these international setbacks, the Chinese finance ministry is earmarked to contribute a substantial 60 billion yuan towards this cause, as the nation accelerates its efforts to contend with the U.S and other global rivals in the semiconductor industry. While the identities of other potential contributors remain undisclosed, the large financial injection is designated predominantly for chip manufacturing equipment investments. It is noteworthy that the fund's operation and launch timeline are yet to be defined unequivocally, with further adjustments to the plan potentially on the horizon.

Over the years, the Big Fund has channelized significant capital towards propelling the growth of China's foremost chip foundries such as the Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor, including other smaller entities and funds. Despite these financial infusions, the nation's chip sector has yet to secure a dominant position in the global supply chain, especially concerning the development and distribution of advanced chips. As this industry constitutes a critical component in numerous technological advancements, securing a foothold in this sector remains a pivotal objective for the Chinese administration.

Regarding the management of this considerable fund, the Big Fund envisages the appointment of at least two entities to spearhead the capital investments. In spite of facing inquiries from China's anti-corruption authority since 2021, SINO-IC Capital, which orchestrated the investments of the first two funds, is slated to retain its managerial role. Furthermore, discussions are underway with China Aerospace Investment, a subsidiary of the state-owned China Aerospace Science and Technology Corporation, to possibly undertake a managerial role in this ambitious project. As China aggressively ventures to carve out a significant niche in the semiconductor domain, the world watches with keen interest to witness the trajectory this substantial investment will carve out in the global chip industry landscape.

About the Author

David Love is an editor at Quiver Quantitative, with a focus on global markets and breaking news. Prior to joining Quiver, David was the CEO of Winter Haven Capital.

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