China has paused its major investments which were aimed at making it a global semiconductor manufacturing hub and compete with the United States. The reason for the pause is the Covid resurgence across the country which has threatened its economic growth.
People familiar with the developments told news agency Bloomberg that Chinese officials are discussing means in which they can move away from the costly subsidies which have failed to bear fruit.
Chinese President Xi Jinping was angered and launched probes and many semiconductor companies’ bigwigs were arrested or detained for their involvement in graft in 2022.
Xi Jinping and the Chinese politburo are unhappy that the sector failed to take advantage of the benefits extended to them.
Though there has been some push for incentives of as much as 1 trillion yuan ($145 billion), some policymakers, according to Bloomberg, are planning to lower the cost of semiconductor materials and seek similar alternatives to help the Chinese semiconductor industry.
If the Chinese government decides to tone down the competitive stance on the semiconductor industry, it indicates that the turbulence in the Chinese economy is impacting its semiconductor industry ambitions.
People familiar with the developments told news agency Bloomberg that local semiconductor material suppliers are being urged to lower costs to help domestic customers.
China believes that dominating the semiconductor industry is crucial if it wants to challenge the US and become a superpower. The industry’s growth was also one of Xi Jinping’s biggest priorities but recently US President Joe Biden has imposed several restrictions on some US exports of chips which are used for artificial-intelligence calculations and manufacturing equipment.
It is still unclear if China will ditch the ‘capital investment-heavy approach’, the Bloomberg report said.
Xi was unhappy with the so-called Big Fund - a key part of the Communist Party of China’s (CPC) drive to build its homegrown integrated circuit industry to end reliance on imported technology. The managers of the fund were arrested as targets were not fulfilled and money was wasted instead of being spent efficiently for almost a decade.
When the US imposed sanctions, Chinese semiconductor bigwigs Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies Co were crippled even though they were backed by the $45 billion in capital fund.
Now the problems that face the industry are caused by Covid as the government has put millions of dollars into fighting the pandemic, signalling that it will be hard to amass a large amount of money to fund the industry. The other issues are weak tax revenue, declining land sales and Biden administration’s hawkish stance - which will also be adopted by other chip giants the Netherlands and Japan - on semiconductor making material exports.
People familiar with the developments told Bloomberg that there are fears that the Big Fund may lose its stature.
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