Chinese president Xi Jinping grew frustrated with the inability of Chinese semiconductor companies to develop circuitry that could beat and replace the ones developed by the US.
This is one of the primary reasons why the Chinese government has cracked down on the sector’s bigwigs, news agency Bloomberg reported.
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The embarrassment was also caused by the $9 billion rescue of Tsinghua Unigroup which was considered a gem in the Chinese semiconductor industry.
The senior officials of the Communist Party of China are angered by the fact that tens of billions of dollars were invested in the industry over the last decade and it failed to yield any result.
The frustrations are also growing because the US has introduced new restraints on China to contain its ambitions to become a semiconductor production giant and replace the US.
The Chinese semiconductor industry bigwigs are stunned since they are accustomed to the state handing out doles to them. Xi Jinping allocated more than $100 billion to construct a domestic semiconductor sector to end China’s reliance on imports from the West.
China also developed a ‘Big Fund’, also known as the National Integrated Circuit Industry Investment Fund, through which Beijing allocated capital to the country’s chipmakers.
Now the government is investigating the head of this so-called Big Fund, Ding Wenwu. Wenwu was the head of this Big Fund which backed major companies like the Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies Co.
His fund drew $45 billion in capital but mostly operated behind the scenes and did not reveal its investment standards to the public, thus avoiding accountability.
The US is also striking China’s ambitions to become a tech giant as its semiconductor industry suffers. It is limiting the kind of chip-making equipment which American companies can export to Chinese customers.
It has also urged major companies like Netherlands’ ASML Holding NV and Japan’s Nikon Corp to join its technology blockade.
People familiar with the developments told news agency Bloomberg that following reviews launched by Chinese government agencies it was found that the advances that were claimed to have been made in the field may have been overstated and that many investments were not fruitful, the people said.
The Bloomberg report also said that in Beijing there was a long-held belief that if enough money was thrown at the problem it would solve itself.
China through the past decade has failed to make progress in narrowing the gap with the West. Dutch firm ASML and major Japanese firms still hold sway in developing chip-making machinery. China relies heavily on imports to meet the $155 billion in semiconductor chip requirements.
A report by the South China Morning Post also revealed that companies with very less experience won grants for pursuing research. More than 15,700 new semiconductor companies registered from January to May 2021. While some were pushed by powerful local interests who launched projects either to secure subsidies or boost political prestige.
(with inputs from Bloomberg)
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