China pauses massive chip investment to compete with United States

China is pausing massive investments aimed at building a chip industry to compete with the United States (US), as a nationwide Covid resurgence strains the world’s number 2 economy and Beijing’s finances.

Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said. While some continue to push for incentives of as much as 1 trillion yuan ($145 billion), other policymakers have lost their taste for an investment-led approach that’s not yielded the results anticipated, the people said. 

Instead, they’re seeking alternative ways to assist homegrown chipmakers, such as lowering the cost of semiconductor materials, the people said, asking not to be identified revealing sensitive negotiations.

That would mark a shift in Beijing’s approach toward an industry regarded as crucial to challenging American dominance and safeguarding Chinese economic and military competitiveness. It underscores how the country’s economic ructions are taxing Beijing’s resources and hobbling its chip ambitions — one of President Xi Jinping’s top priorities. That could have ramifications for spending in other critical areas, from the environment to defense.

Shares in Chinese chipmakers and gear suppliers underperformed a broad market rally. Tokyo Electron slid 1.2 per cent in Japan, while Chinese peers including Naura Technology Group Co. and Advanced Micro-Fabrication Equipment Inc. fell more than 1 per cent.

It’s unclear what other chip policies Beijing is considering, or whether it will ultimately decide to ditch the capital investment-heavy approach that’s worked so well in propelling its manufacturing sector over the past decades. China’s government could still decide to divert resources from other arenas to fund its chipmakers. 

Representatives for the State Council Information Office and Ministry of Industry and Information Technology didn’t immediately respond to faxed requests for comment.

But the discussions now underway are in stark contrast to Beijing’s prior efforts of pouring colossal resources into the chip industry, including setting up the National Integrated Circuit Industry Investment Fund in 2014.

That vehicle lies at the heart of Xi’s unhappiness with Beijing’s prior philosophy. Known within the industry as the Big Fund, it drew about $45 billion in capital and backed scores of companies, including China’s chip making champions Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies.

Ma’s Ant wins nod for $1.5-bn capital plan
 

Chinese regulators approved a plan by Jack Ma’s Ant Group to raise $1.5 billion for its consumer unit, signaling progress in the government-ordered overhaul of the financial technology firm. The China Banking and Insurance Regulatory Commission division in Chongqing green-lit the firm’s plan to lift its capital to 18.5 billion yuan, according to a notice on December 30. 

China resumes residential real estate funds 
 

China resumed approvals for private equity funds to raise money for residential property developments, to boost the country’s real estate sector as the downturn persists. The Asset Management Association of China recently started allowing private equity funds to register such investment products, the people familiar said. AMAC, supervised by the China Securities Regulatory Commission, halted approvals in 2021, Bloomberg reported then.