EIU: China Boosts State-Led Chip Investment
China is reportedly raising more than US$27bn for the third phase of its National Integrated Circuit Industry Investment Fund.
Also known as the National IC Fund, or the “Big Fund”, the state-owned investment vehicle is backed by China’s finance ministry and state-owned enterprises, as well as central and local investment vehicles. This follows China’s new special Treasury bonds, which will be directed at “strategic” areas.
EIU has published a comprehensive analysis of China’s plans for technological advancement, and what this means for Asia’s economy.
Key insights include:
The latest funding efforts reflect China’s enhanced prioritization of technological advancement, particularly amid reports that the US hopes to deepen its co‑ordination on export controls with Germany and South Korea. Those tactics mirror the US’s successful lobbying in 2023 of Japan and the Netherlands to tighten their own export controls on China.
EIU estimates that China’s state-led investment in chips has probably exceeded US$150bn since 2014. The Semiconductor Industry Association, a US-based industry group, has also estimated that as of 2021 China had invested US$73bn through direct funding of domestic semiconductor companies, plus another US$50bn through grants, equity investments and low-interest loans.
While EIU continues to expect China’s chip fabrication process to remain several generations behind the global cutting edge, its chip-related investments will position the country to increase mature-node production capacity. US‑led export controls will limit the extent of China’s advantages, but their enforcement will remain imperfect, as evidenced by China’s IC advances in September 2023.
China’s state-driven investment in mature-node production will pressure the prices of “legacy” chips worldwide, through both oversupply and cost advantages. This will pose downside price risks to markets heavily involved in that space; these include Chinese firms, but also players in Malaysia, Vietnam, Taiwan and South Korea.
China’s strong financing push will also exacerbate international tensions over its state-backed economic model. In addition, even if China enhances its mature chip production capabilities, geopolitical concerns—including compliance with existing (and future) US‑led export controls—may frustrate its attempts to enlarge its global market share.
Ed. Article cover photo courtesy of the Vishu Mohanan on Unsplash.
Editor’s note:
At the heart of today’s digital world, there’s a silent battle that touches everything from the phone in your pocket to the security of nations and even the future of global tech leadership. This battle is all about semiconductors, those tiny chips that power everything we use, making the rivalry between the United States and China not just a matter of technological one-upmanship, but a complex dance of economic, tech, and geopolitical interests. Here’s a closer look at this intricate tango.
Economic Stakes and Technological Leadership
Think of semiconductors as the building blocks of our tech-driven world. They’re at the core of all the gadgets and innovations we can’t live without. This is why the competition for semiconductor supremacy is more than just bragging rights; it’s about which country gets to shape the future of technology. Both the U.S. and China are pouring heart, soul, and billions of dollars into semiconductor technology to make sure they’re not just participants in the future’s digital economy but leaders dictating its pace.
A Matter of National Security
It’s not just about gadgets and economic growth. These chips are also the brains behind today’s most advanced military tech, from satellites to missiles. Having control over the latest semiconductor technology means having a leg up in defense capabilities. This is why the U.S. is so keen on keeping cutting-edge semiconductor tech out of China’s reach; it’s about protecting strategic interests and keeping allies safe.
The Supply Chain Puzzle
Remember when it was hard to buy certain things during the COVID-19 pandemic? That crisis shed light on how fragile global supply chains can be, especially for semiconductors. With this rivalry in the backdrop, both the U.S. and China are hustling to make their semiconductor supply chains more robust, less dependent on unpredictable factors, and, importantly, less reliant on each other. It’s about securing a steady flow of these critical components, no matter what the world throws their way.
The Drive for Technological Independence
China’s push to be self-reliant in semiconductor production isn’t just about national pride. It’s about security and economic independence, ensuring that in times of global tension, they won’t be left in the lurch. The U.S., on the other hand, isn’t resting on its laurels. It’s all about staying several steps ahead in the tech race, ensuring that critical future technologies, from AI to 5G, remain in friendly hands.
The Bigger Picture: Global Influence
This isn’t just about two countries duking it out over microchips. It’s a proxy for a much larger struggle for global influence. The outcome of this semiconductor showdown will influence global trade, alliances, and even how countries interact on the world stage. It’s about who gets to set the rules in the tech age, shaping not just the future of technology but the future of global power dynamics.
