According to a report by Reuters on September 5, 2023, in a bid to bolster its domestic semiconductor industry and achieve semiconductor self-reliance, the Chinese government is planning to launch the third phase of the “Big Fund,” with a capital infusion of approximately 300 billion Chinese Yuan (about 41 billion US Dollars).

TrendForce Insights:

• The Big Fund’s Expanding Scope and Potentially Aggressive Third Phase Investment

The National Integrated Circuit Industry Investment Fund, commonly referred to as the “Big Fund,” originated from the Chinese State Council’s “Outline for the Promotion of National Integrated Circuit Industry Development” issued in June 2014. Its ultimate goal is to bring China’s semiconductor industry up to international standards by 2030 and nurture a group of companies to become international Tier 1 suppliers.

In September 2014, the National Integrated Circuit Industry Investment Fund was officially established, raising a total of 138.7 billion Chinese Yuan, with a primary focus on semiconductor manufacturing and secondary emphasis on design and testing. After five years, the second phase of the fund was organized in October 2019, with its scale expanding to 204.1 billion Chinese Yuan, with a further focus on equipment and materials.

Now, just four years after the second phase, there are reports of China planning to launch the third phase, with a fundraising target increased to 300 billion Chinese Yuan. This indicates that China, faced with semiconductor technology restrictions led by the United States, is increasing its efforts to support the semiconductor industry. The investment strategy for the third phase may be even more aggressive compared to the previous two phases.

• Equipment, Materials, and EDA Remain Key Areas of Investment in the Third Phase

The second phase of the Big Fund exhibited a greater emphasis on the upstream segments of the semiconductor industry, allowing for comprehensive coverage of China’s domestic semiconductor supply chain. However, due to the high technical barriers in semiconductor manufacturing equipment, materials, EDA, and other upstream areas, which are still dominated by a few manufacturers in the global supply chain, short-term investments may not yield immediate results for China’s domestic supply chain.

Additionally, in the face of external technology restrictions, it has become more challenging for China’s semiconductor upstream supply chain to achieve technological breakthroughs through mergers, acquisitions, or attracting foreign talent. Consequently, it is expected that the third phase of the Big Fund will expand its support for Chinese domestic semiconductor manufacturing equipment, materials, and EDA software providers, with a particular focus on key players such as NAURA, AMEC, SMEE, NSIC, Kempur, Jingrui, Empyrean, among others.

TrendForce’s latest investigations indicate that China has recently announced two additional investments funded via phase two of the CICF (China Integrated Circuit Industry Investment Fund, better known as the “Big Fund”). The first of these investments was announced on June 8, 2021 and totaled CN¥1.65 billion, which has been used to establish a joint venture called Runxi Microelectronics, co-funded with CR Micro and the Xiyong Micro-Electronics Industrial Park.

Runxi will operate a semiconductor fab specializing in 12-inch wafer fabrication, with a production capacity of 30K/M (that is, 30,000 wafer starts per month). The second investment, announced on July 2, 2021, will total about CN¥2.5 billion and be put towards AMEC’s efforts to raise capital for establishing an industrial center, a headquarter located in the Shanghai Lin-Gang Special Area, and an R&D headquarter.

Now that the Big Fund Phase 2 has invested in semiconductor equipment for the first time, more equipment suppliers are expected to receive investment capital from Big Fund Phase 2 going forward

Established in October 2019, Phase 2 of the Big Fund consists of CN¥204.15 billion in capital, some of which was subsequently invested into 12 companies across the IC design, IC fabrication, package testing, and equipment sectors, as of July 5, 2021. In terms of funding allocation, IC fabrication take the lion’s share with 78.2% of the aforementioned investment, followed by IC design at 11.6%, equipment at 7.7%, and package testing at 2.6%. To date, about CN¥36.6 billion of the Big Fund Phase 2 has been invested.

Investment in AMEC marks the first time that the Big Fund Phase 2 has purchased shares in domestic suppliers of semiconductor fabrication equipment. As fabrication equipment is the key determinant of whether China can achieve its goal of semiconductor independence, suppliers that previously received Phase 1 funding (including Naura, ACM Research, Piotech, Sky Technology Development, and Shanghai Wanye Enterprises), as well as those that have yet to receive investment from the Big Fund (including SMEE and Hwatsing), are likely to receive Phase 2 funding for their expansion projects going forward.

China’s Big Fund provides the domestic semiconductor industry considerable leverage against US sanctions as AMEC receives financing unaffected by US blacklist

As a major supplier of semiconductor etching equipment in domestic China, AMEC specializes in substrate etching technologies. The company provides products which are used for 8-inch/12-inch wafer fabrication and are compatible with 65nm-5nm process technologies. In addition, AMEC has also been actively developing CVD (chemical vapor deposition) equipment, making it an indispensable part of the Chinese semiconductor supply chain.

AMEC effectively had its overseas financing sources cut off after being blacklisted by the US Department of Defense in January 2021. Now that the Big Fund Phase 2 has infused AMEC with CN¥8.207 billion of investment capital, the company is no longer threatened by its inclusion on the economic blacklist. Hence, the substantial Big Fund Phase 2 has also become an important instrument in China’s fight against US sanctions amidst a persistent trade war currently taking place between the two countries.

（Cover image source: Unsplash）