China Invests $48 Billion to Compete With US Chip Industry

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Key Takeaways

  • China is pouring almost $48 billion into a fund for domestic chip production.
  • It's the third and largest round so far.
  • The US, South Korean, and Taiwan are still leading the field.

China has poured nearly $48 billion into a fund that will help its chips better compete with the US semiconductor industry.

The country’s Ministry of Finance led third wave of investment in the National Integrated Circuit Industry Investment Fund. It also drew money from the governments of major cities, including Beijing, Shanghai, and Shenzhen. State-owned banks and investment organizations made contributions.

China has spent increasing amounts to reduce its dependence on foreign chips, particularly those from the US. and American allies like South Korea and Taiwan. The US has increasingly cut ties with China, blacklisting companies like Huawei and ZTE while barring companies from sending some components and equipment.

The American moves left Chinese companies scrambling to catch up as manufacturing processes sometimes lagged years behind. While China has a flourishing business, most of the chips are older ones destined for cars and other segments where the absolute latest technology isn’t necessary.

China has invested twice into the fund before. It provided $19 billion in 2014, and then $28 billion in 2019. The leap for the 2024 round suggests the country is certain it can make large strides in technology this time around. This might be essential when China has already chalked up $95 billion in private investments for AI, one of the hottest and most compute-intensive segments today.

The nation still faces a significant challenge. Heavyweight factory owners like Intel, Samsung, and Taiwan Semiconductor Manufacturing Company (TSMC) are already eyeing advanced parts built on 2-nanometer processes and beyond. They’re also designing or fabricating increasingly AI-focused processors for customers like Apple and Qualcomm.

China needs performance on a similar level if it’s going to persuade more local brands, such as Oppo and Xiaomi, to stick with domestic chips. Many of them still choose US-designed processors, like Qualcomm’s Snapdragon line, to remain competitive.