China Unveils a Massive Support Package of $47 Billion For Semiconductor Industry

China has established a new state-backed investment fund with a registered capital of USD 47.5 billion. This initiative represents the third phase of China’s national integrated circuit industry investment fund. The fund was officially set up on May 24, 2024. China sees this move as a strategic step to enhance its semiconductor market and reduce its dependence on foreign technology. 

The timing of the fund's establishment is particularly noteworthy, as it coincides with the global semiconductor industry's struggle with supply chain disruptions and surging demand. The fund's largest shareholder is China's finance ministry, holding a 17% stake.

Additionally, the fund boasts a diverse group of investors, including five major Chinese banks: the Industrial and Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China, the Bank of China, and the Bank of Communications. Each of these banks has contributed around 6% of the total capital, further underscoring this initiative's strong financial backing and support.

This fund is the largest of the three funds launched by the China Integrated Circuit Industry Investment Fund, known as the "Big Fund." The first phase of the fund was established in 2014 with a registered capital of USD 20 billion, and the second phase followed in 2019 with USD 28 billion.

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The Big Fund has provided financing to China's two biggest semiconductor foundries, Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor, as well as to Yangtze Memory Technologies, a flash memory maker, and many smaller companies and funds.

One of the major areas the third phase of the fund will focus on is equipment for semiconductor manufacturing in China. Also, the Big Fund is considering hiring at least two institutions to invest the capital in the third phase.

This initiative underscores China's commitment to achieving self-sufficiency in semiconductors. The need for this has increased after the U.S. has imposed a series of export control measures over the last couple of years, citing fears that Beijing could use advanced chips to boost its military capabilities. Apart from China, South Korea is also investing big to lead the semiconductor industry.

Facts About the Entities Involved in the Fund

China's Finance Ministry: The ministry is the biggest shareholder in the fund, holding a 17% stake. The Finance Ministry of the People's Republic of China administers macroeconomic policies and the annual budget. The ministry wants China to make significant strides in the global semiconductor industry.

Industrial and Commercial Bank of China (ICBC): ICBC is one of the largest banks in the world in terms of total assets. It was created on January 1, 1984, from the commercial banking operations of the People's Bank of China. ICBC is contributing around 6% of the total capital to the fund.

China Construction Bank (CCB): CCB is the second-largest bank in the world in terms of market capitalization and the sixth-largest company in the world. It has approximately 13,629 domestic branches. CCB also contributes around 6% of the total capital to the fund.

Agricultural Bank of China (ABC): ABC, also known as AgBank, is one of China's "Big Four" banks. It was founded on July 10, 1951, and its headquarters are in Dongcheng District, Beijing. ABC is contributing around 6% of the total capital to the fund.

Bank of China (BOC): BOC is a Chinese-majority communist-owned commercial bank headquartered in Beijing and one of the very largest banks in the world. BOC is contributing around 6% of the total capital to the fund.

Bank of Communications: Bank of Communications is among the top 5 leading commercial banks in China and has an extensive network of over 2,800 branches covering over 80 major cities. It is contributing around 6% of the total capital to the fund.

Facts About China Integrated Circuit Industry Investment Fund (Big Fund)

The China Integrated Circuit Industry Investment Fund, also known as the "Big Fund," is a state-owned fund established to advance China's semiconductor industry. The fund aims to help China achieve self-sufficiency in the semiconductor industry as part of the "Made in China 2025" plan.

History and Operations

In June 2014, the State Council of the People's Republic of China proposed the Big Fund. In August 2014, the China Development Bank established the fund management company Sino IC Capital. The Big Fund was officially established on September 26, 2014.

The Big Fund operates as a corporate entity under the Ministry of Industry and Information Technology (MIIT) and the Ministry of Finance. It adopted a two-tier management structure where the board sets the strategy and approves major projects while Sino IC Capital carries out the investments and manages the money.

Phases of the Big Fund

The Big Fund has two phases of five years each: Big Fund I (2014–2019) and Big Fund II (2019–2024). The fund raised USD 21.8 billion in its first financing round in 2014. Initially, it deployed at least 60% of its capital into chipmaking investments. The performance of the first phase exceeded market expectations.

In 2019, the Big Fund raised USD 29.08 billion for its second phase. 75% of which went into semiconductor fabrication projects in China.

Read: South Korea Announces $19 Billion Support Package for Semiconductor Industry

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