The Global Chip War Heats Up: China Ups the Ante with Massive Fund

China's Big Fund Gets Bigger

· China launched a new, record-breaking state-backed investment fund for its domestic chip industry, aiming for self-sufficiency (chip sovereignty).

· The National Integrated Circuit Industry Investment Fund (Big Fund) is in its third iteration, with Big Fund III reaching a staggering 344 billion yuan ($47.5 billion).

· This dwarfs both Big Fund I and Big Fund II, showcasing China's serious commitment to domestic chip production.

Motivations and Concerns

· This move follows the recent US restrictions on chip exports to China, particularly impacting Huawei.

· China is heavily reliant on Taiwan for advanced chip production (TSMC). A potential conflict there would be disastrous.

· The US and Europe also want to reduce their dependence on China for chip supplies.

The Uneven Playing Field

· China currently manufactures 60% of legacy chips but lags in advanced chip production.

· The US is attempting to slow China's progress through export restrictions, potentially impacting Chinese AI firms and chipmakers like SMIC.

Big Money, Big Ambitions

· Big Fund III targets large-scale wafer manufacturing and High Bandwidth Memory (HBM) chips crucial for AI, 5G, and IoT.

· This fund surpasses the US CHIPS Act's direct chip manufacturing incentives ($39 billion) and dwarfs similar initiatives in the EU and South Korea.

Past Performance and Future Prospects

· China's previous chip investments haven't always been successful, leading to leadership frustration and corruption investigations.

· Building a robust domestic chip industry takes time, despite China's significant investment.

Innovation Beyond the Headlines

· Western companies like French startup Diamfab are exploring alternative chip materials like diamond, potentially impacting the green transition.

Looking Ahead

· The global chip war intensifies with China's massive investment.

· Both sides are taking action to secure their chip supply chains.

· The race for innovation in chip technology continues, with advancements beyond traditional silicon on the horizon.