China is roping in financial blue-chips in a renewed push to achieve technological self-sufficiency. Six of the country’s biggest lenders have invested in Beijing’s third and largest semiconductor fund, marking a new and riskier phase in China’s industrial ambitions.
Known as the “Big Fund”, the China Integrated Circuit Industry Investment Fund this week launched a 344 billion yuan ($47.5 billion) investment vehicle worth more than its two predecessors combined. It underscores President Xi Jinping’s bold campaign to wean his country off Western chips, equipment and software amid Washington’s efforts to hobble technological advances in the People’s Republic and rising trade tensions with Brussels. Shares of Semiconductor Manufacturing International (0981.HK), opens new tab, a $25 billion domestic chipmaking champion and key beneficiary, rallied more than 4% in Shanghai on Monday.
As with the earlier ones, Big Fund III counts China’s Ministry of Finance as its top shareholder with a roughly 17% stake. What’s different this time is its roster of investors: whereas in the past, policy banks and local governments from Wuhan to Hefei featured heavily, the latest fund has roped in the $270 billion Industrial and Commercial Bank of China(601398.SS), opens new tab, the world’s largest bank by assets, and peers. All together, the six Chinese lenders have invested 114 billion yuan for a combined one-third stake.
It’s a prudent move. The central government is grappling with a property crisis alongside a sluggish economy; it is already issuing 1 trillion yuan worth of special bonds to boost growth. Tapping the country’s lenders, which have access to the country’s nearly $18 trillion of savings, could help ease the fiscal strain on cash-strapped provinces. Companies in the private sector, from Alibaba (9988.HK), opens new tab and Tencent (0700.HK), opens new tab, are also investing huge sums to back promising upstarts.
This will come at the expense of shareholders. China Construction Bank (601939.SS), opens new tab, which took a 6% stake in the chip fund, justifies the investment as “a strategic choice to serve the real economy”. Moreover, since its inception in 2014, the Big Fund has been marred by bankruptcies and corruption scandals, culminating to the arrest of it chairman in 2022 shortly after the financial implosion of Tsinghua Unigroup, the country’s erstwhile chip darling.
The payoff for the local semiconductor sector could be huge. So will the investment risks for the country’s biggest firms.
CONTEXT NEWS
China’s government has set up its third state-backed investment fund on May 24 with a registered capital of 344 billion yuan ($47.5 billion) to boost its semiconductor industry, according to a filing with a government-run companies registry. This will be the largest one launched by the China Integrated Circuit Industry Investment Fund.
The Ministry of Finance is the biggest shareholder with a 17% stake. Eighteen other entities are listed as investors, including six of the largest state-owned banks as well as an investment affiliate of telecoms firm China Mobile.