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China to Funnel $29 Billion Towards its Chip Ambitions

Bloomberg News

(Bloomberg) -- China has formally created a $29 billion state-backed fund to invest in the semiconductor industry, advancing its goal of reducing a dependency on U.S. technology.

China is the world’s biggest chip importer, and the long-awaited 204 billion yuan ($28.9 billion) fund will fuel Beijing’s efforts to forge its own semiconductor supply chain from chip design to manufacturing. It will play a key role in steering overall strategy and investment in the integrated circuit sector, which includes processors and storage chips used in smartphones and datacenters.

Beijing’s effort to reduce its reliance on American chips is taking on greater urgency as the Trump administration adds more Chinese names to its export blacklist, cutting off the flow of chips to targeted companies from Huawei Technologies Co. to SenseTime Group Ltd.

The fund’s registered capital comes mainly from state organizations, according to company registration information, which was posted online on Oct. 22.

China’s Ministry of Finance injected 22.5 billion yuan while an investment arm of China Development Bank poured in 22 billion yuan. It also attracted investment from local governments and state-owned enterprises including China Tobacco, the registration information shows.

China created its first state-led integrated circuit fund in 2014 to provide backing to major chip manufacturing initiatives, including Tsinghua Unigroup’s multibillion dollar memory chip plant in the central city of Wuhan.

Beijing is trying to reduce the country’s reliance on semiconductor imports worth about $200 billion annually. It fears such dependence undermines national security and hampers the development of a thriving technology sector. The country envisions spending hundreds of billions of dollars to achieve a prominent position in the semiconductor industry -- something U.S. tech executives and government officials have warned could harm American interests.

To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Colum Murphy

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