China's Ambitious Chip Fund Faces Headwinds Amid Economic Challenges and US Restrictions

China's latest effort to bolster its semiconductor industry faces challenges in its initial stages, struggling to meet its RMB300 billion ($41 billion) target, with economic hardships cited as the primary reason. 

This funding round, the most ambitious by China, comes after Beijing approved a third round for the China Integrated Circuit Industry Investment Fund, commonly called the Big Fund, the Financial Times reports

Established in 2014, the Big Fund has significantly driven the growth of the chip industry and aligns with President Xi Jinping's push for technological independence.

Also Read: Federal Aid Recipients Face Limits on Chip Production Expansion in China: Report

The fund reflects China's plans not to yield to the U.S. semiconductor embargo that barred the country from acquiring Nvidia Corp NVDA and Advanced Micro Devices, Inc's AMD sophisticated artificial intelligence chips. 

In its earlier phases, the fund successfully garnered RMB139 billion and RMB200 billion, channeling these resources to support local chip giants and R&D initiatives. 

However, the current economic downturn, exacerbated by the slow recovery from the pandemic, has made local governments and state-owned enterprises hesitant to invest. 

These entities, already grappling with financial constraints and mounting debts, are now adopting a more conservative investment stance, FT writes.

Historically, the finance ministry has significantly contributed to the Big Fund, but the recent U.S. restrictions on technology access have made investment decisions more tentative. 

The Big Fund, while considering investments, now also weighs the implications of these U.S. constraints, limiting its options

Furthermore, an anti-corruption probe into the Big Fund has dented market confidence and slowed investment activities.

Yet, despite these hurdles, the Big Fund remains committed to its five-year plan. The latest round will primarily focus on chipmaking equipment, shifting from the earlier emphasis on semiconductor manufacturing. 

This change comes as China's chipmakers, including Yangtze Memory Technologies, pivot towards domestic equipment due to tightened U.S. export restrictions on advanced semiconductor tools. 

Meanwhile, China's Huawei Technologies and China's top chipmaker, Semiconductor Manufacturing International Corp (SMIC), have built an advanced 7-nanometer processor to power its latest smartphone.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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