Opinion: How to Better Mobilize Private Investment in the Chip Sector

The recent establishment of National Integrated Circuit Industry Investment Fund Phase III Co. Ltd. (referred to as “Phase III of the Big Fund”) has focused market attention. This Chinese government initiative aims to support and guide domestic semiconductor investments, hoping to stimulate private investment and address China’s challenges in the chip sector [para. 1]. Global competition in the integrated circuit industry is intensifying. China faces external blockades and internal polarization, with dependency on foreign technology for advanced processes. Phase III of the Big Fund carries a unique historical mission distinct from its previous phases [para. 2].

The Big Fund's impact on China's chip industry is significant. Initiated in June 2014, the State Council's Outline for Promoting the Development of the National Integrated Circuit Industry led to the fund's establishment. It aims to attract investment from large enterprises and financial institutions, support integrated circuits, and promote industrial upgrades, functioning on a market-oriented basis. Since its inception in September 2014, the Big Fund has leveraged greater social capital through direct investments and as a parent fund for semiconductor investments, also providing indirect debt financing to enterprises [para. 3].

The first phase of the Big Fund raised 138.7 billion yuan ($19.1 billion), while the second phase raised 204.1 billion yuan. The third phase surpasses these, with a registered capital of 344 billion yuan, emphasizing the fund's previous success in exceeding expectations and boosting domestic semiconductor investment. These investments have supported leading enterprises and listed companies, forming a solid foundation for China’s chip industry [para. 4].

The Big Fund has maintained a stable investment track record, achieving notable financial returns and aiding domestic substitution in areas like design, manufacturing, packaging, and testing. This helped counter attempts by some countries to disrupt the chip industry chain, reflecting the Big Fund’s crucial role [para. 5].

Phase III of the Big Fund must adapt to evolving conditions. Debate has surrounded its necessity, focusing on whether it can maintain market-oriented, independent, and effective investments amidst past challenges, such as anti-corruption issues. Moving forward, refining institutional arrangements, governance structures, and attracting market-oriented talent will be vital [para. 6]. The semiconductor industry faces “hard bones” to chew, with immense challenges requiring smart money and innovative market-driven strategies to overcome these barriers and stimulate technological innovation [para. 7].

Experience suggests that investment cycles, leadership investment styles, and various investment forms impact the Big Fund’s success. Phase III should extend investment cycles, venture into early-stage investments, increase risk tolerance, and avoid overshadowing social investments in mature market segments [para. 8]. Platforms like the Science and Technology Innovation Board should coordinate with the Big Fund to enhance capital market resonance, providing exit channels for investments and forming a virtuous industrial cycle [para. 9].

The global semiconductor industry is transforming under the influence of technological revolutions driven by artificial intelligence, with developed nations leading. China possesses systemic advantages in resource mobilization but must balance flexibility and competitiveness in market mechanisms. Integrating technology, industry, and finance is pivotal for Phase III of the Big Fund to mobilize social forces and achieve breakthroughs in high-tech development [para. 10].