China Is Said Raising Up to $31.5 Billion to Fuel Chip Dream

(Bloomberg) -- China's government aims to raise as much as 200 billion yuan ($31.5 billion) to invest in homegrown chip companies and accelerate its ambition of building a world-class semiconductor industry, people familiar with the matter said.

The state-backed China Integrated Circuit Industry Investment Fund Co. is in talks with government agencies and corporations to raise at least 150 billion yuan for its second fund vehicle but is angling for up to 200 billion yuan, the people said, asking not to be identified talking about a plan that hasn't been publicized. It intends to begin deploying capital in the second half of the year, they added.

The firm will again invest in a wide range of sectors from processor design and manufacturing to chip testing and packaging, potentially benefiting industry leaders from telecoms gear makers Huawei Technologies Co. and ZTE Corp. to major players such as the Tsinghua Group. The first fund -- about 140 billion yuan -- had gone toward more than 20 listed companies, including ZTE and contract chipmaker Semiconductor Manufacturing International Corp., the people said.

Smaller chip players gained in the afternoon. Integrated circuit manufacturer Jiangsu Changjiang Electronics Technology Co. climbed as much as 6.2 percent in afternoon trading in Shanghai, while chip packager China Wafer Level CSP Co. gained almost 5 percent.

China's trying to reduce a reliance on some $200 billion of annual semiconductor imports, which it fears undermines national security and hampers the development of a thriving technology sector. The country envisions spending about $150 billion over 10 years to achieve a leading position in design and manufacturing, an ambitious plan that U.S. executives and officials have warned could harm American interests.

While officials have suggested their initial vision of attaining pole position in chips may have been unrealistic, the government remains intent on finding ways to reduce imports as the world's largest consumer of semiconductors. Established in 2014, the secretive China IC Fund plays a key role by steering overall investment and strategy. For its second fund, the state-backed outfit will again turn to central and local government agencies as well as the government-backed enterprises that contributed previously, the people said. 

The envisioned ramp-up in domestic investment comes as foreign scrutiny of Chinese-led acquisitions intensifies. The Trump administration blocked a $1.3 billion deal for U.S. chipmaker Lattice Semiconductor Corp. from China-backed Canyon Bridge last year, citing security concerns. The Ministry of Industry and Information Technology didn't respond to a faxed request for comment.

Read more: China Is Starting to Rethink Its Dreams of Chip Domination

The Tsinghua group, an affiliate of the prestigious Beijing university that spawned Chinese leaders including President Xi Jinping, also plays a crucial role. It groups under its umbrella the largest of the country's chip producers including Tsinghua Unigroup Co., which has outlined a $22 billion plan -- partly from the China IC Fund --- to pursue acquisitions and build capacity.

“We want to be a balancer against the international giants, which means delivering self-made technologies and growing the market share of made-in-China products,” Qi Lian, Unigroup joint president and chief executive of its storage arm, told reporters Thursday. “To achieve this goal, we are building up our own R&D and also keeping an eye on global technology collaboration.”

To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net, Steven Yang in Beijing at kyang74@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan

©2018 Bloomberg L.P.

With assistance from Gao Yuan, Steven Yang