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China Challenges U.S. Technological Restrictions.

China strengthens its semiconductor industry with an ambitious fund

China is taking significant steps to cement its position as a global leader in the semiconductor industry by creating its largest chip fund to date, surpassing $27 billion. This move is a direct response to the increasing technological restrictions imposed by the United States, designed to limit China’s advancement in crucial areas such as chips and artificial intelligence. The National Integrated Circuit Industry Investment Fund, also known as the “Big Fund,” is gathering capital from local governments and state-owned enterprises for its third investment vehicle, expected to exceed the 200 billion yuan of its second fund.

Strategies and objectives behind the new mega fund

The establishment of a significantly larger third fund, directly overseen by China’s powerful technology ministry, marks a renewed effort to leverage the world’s largest semiconductor market after years of mixed success under central management. Despite previous efforts, tech giants like Huawei Technologies Co. and its partner, Semiconductor Manufacturing International Corp. (SMIC), still depended on US-origin technology to develop advanced processors last year. This new fund aims to change that dependence, with the majority of its capital coming from local governments, their investment arms, and state-owned enterprises, while the central government will contribute only a fraction. This approach is part of President Xi Jinping’s “whole nation” strategy, aiming to gather valuable capital nationwide for significant projects.

Implications and future challenges

China’s initiative to seek technological self-sufficiency intensifies as the United States urges allies like the Netherlands, Germany, South Korea, and Japan to further tighten restrictions on China’s access to semiconductor technology. The Big Fund is key to China’s strategy to counteract US “containment” efforts. Moreover, the fund will finance three to four capital pools managed by other general partners under a “fund of funds” structure to diversify deal sourcing and investment strategies. It will also directly support local companies, being vital for the future development of semiconductor technology in China and challenging international technological restrictions.