Caixin
Nov 22, 2021 08:34 PM
BUSINESS

Fund Exec Linked to China’s Chip Self-Sufficiency Drive Probed for Graft

Gao Songtao
Gao Songtao

A senior executive linked to China’s state-backed semiconductor drive is being probed by the nation’s top graft-buster for alleged corruption.

Gao Songtao, 51, who served as the vice president of Sino IC Capital Co. Ltd. from October 2014 to November 2019, is under investigation for “serious violations of laws,” a standard euphemism for corruption, the Central Commission for Discipline Inspection announced Friday (link in Chinese).

Sino IC Capital was established in August 2014 as the sole manager of the 130 billion yuan ($20 billion) China Integrated Circuit Industry Investment Fund — also known as the “Big Fund” — which was set up with investment from heavy hitters like the Ministry of Finance, an investment arm of the China Development Bank, China Tobacco, and China Mobile.

The state-backed fund had exhausted that allocation by the end of 2018 through investment in domestic semiconductor firms. Amid increased U.S. pressure on chip supply lines, it raised a second tranche of capital in 2019, this time totaling 200 billion yuan.

In November that year, Gao departed and became founding general manager of a 147.2 billion yuan fund dedicated to upgrading Chinese manufacturing, which was led by the Ministry of Finance.

One company that attracted investment from Sino IC during Gao’s tenure was Shenzhen Goodix Technology Co. Ltd., a chip firm specializing in fingerprint recognition technology. The China Securities Regulatory Commission later linked Gao to an insider trading case involving a 2017 share reduction, in which it fined another person 550,000 yuan.

China has been ramping up efforts to develop its homegrown chip industry to reduce its reliance on U.S. technology. The fund managed by Sino IC Capital was a central part of Beijing’s national blueprint for the sector’s development, which came even before Washington’s sanctions on Huawei and others. The massive investment led to a flood of wannabe chip unicorns, with 138,000 chip design startups registered on the Chinese mainland in September last year.

However, hundreds of billions of dollars in government and private investor cash have piled into an industry with a limited pool of talent, fueling concerns that the sector could fall into an unproductive and wasteful cycle.

In February this year, Wuhan Hongxin Semiconductor Manufacturing Co. Ltd., an $18.5 billion company that had aimed to become one of the country’s leading high-tech chipmakers, began to dismiss its employees after a year of stoppages. A Caixin investigation had earlier found claims about the firm’s advanced technology had been over-egged.

At the same time, the high-profile restructuring of chipmaking conglomerate Tsinghua Unigroup Co. Ltd. to resolve massive debts has been gathering pace, with the company engaging in talks with seven strategic investors including state-owned China Electronics Corp. and e-commerce giant Alibaba Group.

Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editors Bertrand Teo (bertrandteo@caixin.com) and Flynn Murphy (flynnmurphy@caixin.com)

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