China Faces Challenges in Gathering Investments for its Semiconductor Industry
As previously reported, Chinese authorities have been attempting to attract up to $41 billion in funding from both state and private investors for a fund dedicated to supporting the country’s national semiconductor industry. However, sources within China suggest that raising the remaining funds has proven to be quite challenging due to unfavorable economic and geopolitical conditions that are dissuading investors from parting with their money.
According to reports from Financial Times, state-owned enterprises and municipal authorities have faced reluctance from potential investors to contribute to the fund, given the current regional economic climate. Some of these potential investors are also burdened with substantial debts. Furthermore, the targeted amount of $41 billion is considerably higher than the sums raised in the two previous rounds, which took place since 2014. The fund initially attracted around $19 billion, followed by an additional $27 billion in the second round. However, not all funds from the most recent round have been allocated as an internal corruption investigation complicated the fund’s operations.
Secondly, potential investors are cautiously assessing the prospects of such investments, considering the direction of recent US sanctions. If future sanctions significantly impede the semiconductor manufacturing sector, some investors may be hesitant to invest their funds. This hesitancy could potentially render such investments unproductive.
During the first stage of the fund’s creation in 2014, China’s Ministry of Finance made the largest contribution, accounting for over 44% of all funds raised. However, in the second stage, its contribution decreased to 15%. Therefore, roughly two-thirds of the contributions in the current stage are expected to come from municipal authorities in interested regions, state-owned enterprises, and private companies.
The allocation of funds during the two previous stages of financing is also of interest. In the first stage, over 30% of the fund’s resources were directed toward semiconductor component manufacturing, with over 10% going to the memory manufacturing segment. However, the majority of the funds were allocated to support companies in the financial sector. In the second phase, approximately 55% of the funds went to support chip manufacturers, with around 40% going to memory manufacturers. In both cases, manufacturers of equipment for chip production and packaging received minimal support. The third phase of funding plans to address this imbalance, as China’s need for domestically produced equipment is particularly high amidst US and allied sanctions.
It is noteworthy that around 30% of the companies that received support from the fund during the first phase also received support during the second stage, indicating a cautious investment policy. Given that the second phase of funding occurred in 2019, five years after the first, it is now approaching the time for gathering funds for the third phase. However, China’s current economic situation is not the most favorable, and significantly more funds are planned to be raised than in the previous two phases.
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- I'm Vasyl Kolomiiets, a seasoned tech journalist regularly contributing to global publications. Having a profound background in information technologies, I seamlessly blended my technical expertise with my passion for writing, venturing into technology journalism. I've covered a wide range of topics including cutting-edge developments and their impacts on society, contributing to leading tech platforms.
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