Fund Backing China’s Chip Pursuit Pulls in Billions for Manufacturing, But Tech Breakthroughs Remain Scant

The same Chinese semiconductor fund that helped the country’s Semiconductor Manufacturing International Corporation (SMIC) become the world’s third-largest chip foundry just doubled up all of the funding it managed to raise over the last decade with a new installment worth almost $48 billion. The latest injection into China’s so-called “Big Fund” follows the surprising development of homegrown 7 nanometer (nm) chips in the face of increasingly strict trade restrictions on advanced chip and fabrication equipment shipments from the US and its international allies. 

The new chips, manufactured by SMIC, have been deployed in Huawei smartphones, which are now eating away at Apple’s share of the Chinese handset market. More components in Huawei’s devices are coming from domestic suppliers than ever before. Reports suggest SMIC may have also managed to develop production capabilities for 5nm chips, but the yield associated with these processors will likely be difficult to scale up. 

Related ETFs & Stocks: Invesco China Technology ETF (CQQQ), iShares MSCI China ETF (MCHI), Semiconductor Manufacturing International Corporation (0981.HK)

Following two initial funding rounds of $19.2 billion and $28.2 billion over the past decade, Beijing has raised another $47.5 billion for its third installment of a national semiconductor fund. Colloquially known as the “Big Fund”, the state-owned National Integrated Circuit Industry Investment Fund’s latest fundraise counted China’s Ministry of Finance as its largest investor, but has also brought in funding from six of the country’s largest state-owned banks.

One recent example of the groundbreaking investments the Big Fund is making within China is the allocation of $5.3 billion to bolster the construction of a $21.0 billion DRAM mega factory in Hefei Province. The factory would be operated by Changxin Xinqiao Storage Technology and compliment a $1.8 billion investment by the China Integrated Circuit Industry Investment fund in Yangtze Memory Technologies (YMTC), which handles NAND flash memory used in smartphones and other devices.

Chinese chip giant Semiconductor Manufacturing International Corporation (SMIC) was an early recipient of Big Fund investment all the way back in 2015, exhibiting just how impactful this fund can be in bolstering the nation’s chipmaking capacity. New data from Counterpoint Research shows SMIC was the world’s third-largest foundry in terms of revenue throughout Q1 of this year. SMIC’s 6% market share is still dwarfed by those of the world’s…