China Launches $44 Billion Fund to Boost Semiconductor Industry Amid Sanctions

China Launches $44 Billion Fund to Boost Semiconductor Industry Amid Sanctions

China’s State Fund for chip companies is set for its third phase as the country faces increasing sanctions.

The Chinese government, in collaboration with local banks and investors, is establishing another state fund to support the semiconductor industry. The responsible entities have raised 344 billion yuan, equivalent to approximately 44 billion euros.

This information comes from Chinese business publication Caixin and the South China Morning Post, citing the business registry Qichacha. Among the 19 significant contributors are the Chinese Ministry of Finance (17.4%), China Development Bank Capital (10.5%), Shanghai Guesheng Group (8.7%), and China Construction Bank (6.3%).

This is the third iteration of the National Integrated Circuit Industry Investment Fund, commonly referred to as the Big Fund. It initially launched in 2014 with 138.7 billion yuan, followed by a second round in 2019 with 204 billion yuan. Based on current exchange rates, the total investment from all three rounds amounts to 87 billion euros.

China’s Need for Lithography Systems

Preparations for the Big Fund III have been underway since summer 2023, following the introduction of new export restrictions to China, which have since taken effect. These restrictions particularly impact lithography systems from global leader ASML. The company can now only sell outdated lithography equipment to China, significantly slowing the development of new manufacturing processes. Despite relying on older manufacturing technologies, known as Mature Nodes, Chinese firms remain key customers for ASML.

Chinese flagship contract chip manufacturer SMIC recently managed to achieve a 7-nanometer process using ASML’s lithography systems, but China now faces a colossal task: developing lithography systems that use extreme ultraviolet (EUV) exposure technology for the finest chip structures. These systems are so complex that even established companies like Canon or Nikon do not mass-produce them.

To avoid falling behind technologically, China needs to create its own manufacturer for lithography systems. Companies like Huawei are reportedly researching EUV technology.