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China has closed a third state-backed investment fund to bolster its semiconductor industry and reduce reliance on other nations, both for using and for manufacturing wafers \u2014 prioritizing what is called chip sovereignty.<\/p>\n
China\u2019s National Integrated Circuit Industry Investment Fund, also known simply as \u2018the Big Fund,\u2019 had two previous vintages: Big Fund I (2014 to 2019) and Big Fund II (2019 to 2024). The latter was significantly larger than the former, but Big Fund III is larger than both at 344 billion yuan, or about $47.5 billion, public filings<\/a> revealed.<\/p>\n Exceeding expectations<\/a>, and following Huawei\u2019s recent increased reliance<\/a> on Chinese suppliers, the size of Big Fund III confirms the country\u2019s aim to achieve self-sufficiency in semiconductor production. It is also a reminder that the chip war<\/a> between China and the West goes both ways.<\/p>\n The U.S. and Europe aren\u2019t alone in wishing to reduce their dependence on their perennial tech rival. China, too, has reasons to worry about its supply, and it\u2019s not just exports from the U.S. and its partners that are at risk<\/a>.\u00a0<\/p>\n When it comes to chip manufacturing, Taiwan is the chief concern. China seizing control of its production capabilities would put the U.S. and its allies at a massive disadvantage<\/a>; Taiwan Semiconductor Manufacturing Co. (TSMC) currently makes around 90% of the world\u2019s most advanced chips.\u00a0<\/p>\n On the other hand, Bloomberg heard from sources that Netherlands-based ASML and TSMC have ways to disable chip-making machines<\/a> in the event that China invades Taiwan.<\/p>\n As for China, it is producing some 60% of legacy chips<\/a> \u2014 the type that are found in cars and appliances, U.S. Commerce Secretary Gina Raimondo recently declared.\u00a0<\/p>\n The chip war extends to both legacy and advanced chips, with uneven results.<\/p>\n The Chinese official narrative is that U.S. policy is backfiring<\/a>, with exports from leading U.S. chip players dropping, and others share that view<\/a>.\u00a0<\/p>\n Either way, this leaves a company like Nvidia walking a fine line \u201cbetween maintaining the Chinese market and navigating U.S. tensions,\u201d Hebe Chen, a market analyst at IG, recently told Reuters<\/a>. The company tailored three chips for China after U.S. sanctions prevented it from exporting its most advanced semiconductors, but competition forced it to adopt a lower price than it might have wanted.<\/p>\n However, it could also be argued that the commercial struggles of Western chip players might be worth the cost if it can prevent China from developing and accessing more advanced chips as fast as its competitors.<\/p>\n Signs indicate that restrictions could hit China where it hurts; for instance, if the country\u2019s AI firms lose access<\/a> to Nvidia\u2019s cutting edge chips, or if it makes it harder for its champion, SMIC, to produce its own<\/a>.<\/p>\n Big Fund III itself shows that China is feeling the heat. According to reports<\/a>, the money will go towards large-scale wafer manufacturing like previous funds, but also to making High Bandwidth Memory chips. Known as HBM chips, these are used in AI, 5G, IoT and more.<\/p>\n Its size, though, is the biggest tell.<\/p>\n Backed by six major state-owned banks<\/a>, Big Fund III is now larger than the $39 billion in direct incentives that the U.S. government will dedicate to chip manufacturing as part of the CHIPS Act.<\/a> However, the whole federal funding envelope adds up to $280 billion<\/a>.\u00a0<\/p>\n At \u20ac43 billion, the EU Chips Act<\/a> looks small in comparison to both, as does South Korea\u2019s $19 billion support package<\/a>, and the markets likely took notice.<\/p>\n The news of Big Fund III caused a rally<\/a> around stock from Chinese semiconductor companies that stand to benefit from this new capital. However, Bloomberg noted that Beijing\u2019s past investments haven\u2019t always paid off<\/a>.<\/p>\n In particular, \u201cChina\u2019s top leadership was frustrated<\/a> with a years-long failure to develop semiconductors that could replace U.S. circuitry. In addition, the former boss of the Big Fund was removed and investigated<\/a> for corruption,\u201d the media outlet pointed out.<\/p>\n Even without corruption, making major changes to semiconductor manufacturing is a slow process. In Europe and the U.S, too, this takes time, but there are interesting new developments.\u00a0<\/p>\n French deep tech startup Diamfab, for instance, is working on diamond semiconductors that could support green transition<\/a>, particularly in the automotive industry. That\u2019s still a few years away, but it is the type of Western innovations that could be as interesting to track as whatever Chinese legacy players may do.<\/p>\n