China to Inject $40 Billion into Semiconductor Sector with New State Fund

China is preparing to launch a new state-backed investment fund dedicated to bolstering its semiconductor industry. The fund, which aims to raise approximately $40 billion, is part of China's intensified efforts to compete with the U.S. and other global leaders in the chip industry. This fund is expected to be the largest of three funds initiated by the China Integrated Circuit Industry Investment Fund, also known as the Big Fund. With a target of 300 billion yuan ($41 billion), the new fund surpasses similar funds launched in 2014 and 2019, which raised 138.7 billion yuan and 200 billion yuan respectively. The fund's primary investment focus will be on equipment for chip manufacturing. This move aligns with President Xi Jinping's emphasis on China's need for self-sufficiency in semiconductors, a need that has been heightened by recent U.S. export control measures and sanctions that have limited China's access to advanced chipmaking equipment. The fund received approval from Chinese authorities in recent months, with the country's finance ministry planning to contribute 60 billion yuan. Other contributors are yet to be confirmed. In the past, the Big Fund has provided financial support to China's two largest chip foundries, Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor, along with Yangtze Memory Technologies and several smaller companies and funds. Despite these investments, China's chip industry has yet to secure a leading role in the global supply chain, particularly for advanced chips. The Big Fund is considering hiring at least two institutions to manage the new fund's capital. Several senior officials from SINO-IC Capital, the sole manager for the Big Fund's first two funds, have been under investigation by China's anti-graft authority since 2021. However, SINO-IC Capital is expected to remain one of the managers for the third fund. Chinese officials have also approached China Aerospace Investment, the investment arm of state-owned China Aerospace Science and Technology Corporation, to discuss the possibility of being one of the fund managers.