China to launch $40 billion state fund to boost chip industry even as U.S. sanctions failed to stop China’s rise

It was just yesterday that we reported on Huawei’s recent launch of the Mate 60 Pro, a 5G smartphone featuring an advanced 7nm chip made by Semiconductor Manufacturing International Corporation (SMIC).  The launch comes just three years after the US government imposed comprehensive sanctions on Huawei, cutting off the company’s access to critical US technology.

The Mate 60 Pro’s chip breakthrough is a major victory for Huawei and a setback for the US government’s efforts to contain the company’s rise. It also demonstrates the resilience of China’s chip industry, which has been working to develop its own capabilities in the face of US sanctions. Now the Chinese government is preparing to provide a massive funding boost to Huawei and other Chinese chip makers.

According to an exclusive report from Reuters, China is preparing to launch a new state-funded $40 billion investment fund for its semiconductor industry, citing two people familiar with the matter. The move is seen as part of Beijing’s efforts to catch up with the US and other rivals in the global chip market.

The new fund from the China Integrated Circuit Industry Investment Fund, often referred to as the Big Fund, is poised to become the largest among three such funds. With a massive target of 300 billion yuan (equivalent to $41 billion), the new fund will surpass the sums raised by similar funds in 2014 and 2019, which, according to government reports, amounted to 138.7 billion yuan and 200 billion yuan, respectively.

Sources familiar with the matter told Reuters that the fund is expected to focus on investing in equipment for chip manufacturing. This is a key area for China, as the country currently relies on foreign suppliers for many of its chipmaking tools.

The fund’s launch comes amid growing tensions between China and the United States over technology. In recent years, the US has imposed a series of export controls on China, citing concerns about the country’s military ambitions. These controls have made it more difficult for Chinese companies to obtain advanced chipmaking equipment.

Over the past years, Chinese President Xi Jinping has consistently emphasized the importance of China achieving self-sufficiency in semiconductor production. This emphasis has grown even more pronounced due to a series of export control measures imposed by Washington in recent years. These measures were motivated by concerns that Beijing could employ advanced chips to bolster its military capabilities.

In October, the United States implemented extensive sanctions, restricting China’s access to cutting-edge chip manufacturing equipment. Japan and the Netherlands, among U.S. allies, have also taken similar actions.

The new fund is seen as a way for China to circumvent these controls and achieve self-sufficiency in the semiconductor industry. It is also a sign of the Chinese government’s commitment to this strategic sector. The fund was approved by Chinese authorities in recent months, and China’s finance ministry is planning to contribute 60 billion yuan ($9.2 billion).

The fund is expected to be operational in the coming months. It is unclear how much of the fund will be used to support domestic chipmakers, and how much will be used to acquire foreign chipmaking technology. However, the launch of the fund is a major boost for China’s semiconductor industry and a sign of the country’s determination to become a leading player in this critical sector.