China Initiates $40BN State Fund for Chip Sector: A New Era in Tech?

With the recent discovery of China’s 7nm capabilities, some are starting to question if the numerous sanctions and restrictions against China are doing more harm than good. Now, China has announced a new round of fundraising that will see at least $40bn invested into the Chinese semiconductor market. What challenges does the West now face with China, what did China announce, and is China unstoppable at this point?

What challenges does the West now face with China?

Over the past few years, China’s increasing technological power combined with its growing influence has raised numerous concerns with Western-allied countries. Not only has China used its position to try and exert control over other nations via debt trapping (see the relationship between Africa and China for numerous examples of this), but it has repeatedly used its position as a global manufacturer of electronic goods to steal IP and implant surveillance tech into everyday items ranging from IoT sensors to automobiles.

To try and prevent China from becoming a global leader in technology (which incidentally also means a leader in defence as these two industries are closely coupled), the West has introduced numerous sanctions and restrictions in an effort to hold China back. These actions have gone so far as to even affect the West’s ability to modernise, with 5G networks facing significant struggle as Huawei equipment was banned in the US, UK, and EU. 

While these actions certainly worked for a time, it didn’t take long for China to find the motivation to develop its own technologies and fund its own initiatives. For example, it was recently confirmed that China has managed to achieve 7nm technology despite having no access to the ASML systems needed to produce them. This achievement was a result of repurposing older systems and developing new techniques to manufacture smaller features. 

Now that China is showing increasing signs of technological independence, the West is starting to find itself in a difficult position. If China becomes too self-reliant, then the West will have little power to influence the development of Chinese industries, thereby making sanctions and trade restrictions mute.

To make matters worse, China is a major manufacturer of electronics goods for the world, something which the West heavily relies upon. Furthermore, China is also responsible for numerous raw minerals, such as Gallium and Germanium, which the global semiconductor industry is dependent on. As such, China has been exploiting this fact by introducing its own trade restrictions, massively increasing the price of Gallium and Germanium worldwide (thus hurting Western interests).

Overall, it seems that the actions that the West have taken have potentially done more harm to Western economies than previously thought.

China announces new $40bn fundraising goal for semiconductors

Recognising the vast importance of semiconductor sovereignty and the achievements made by Chinese engineers, the Chinese government has recently announced that it will be looking to raise over $40bn for its semiconductor industry. This is not the first time that China has looked to raise funds for its semiconductor industry, with the previous funding raising a similar amount of money (called The Big Fund). 

A recent video report by Reuters highlighted that China is not only looking to bolster its semiconductor sector but is also making concerted efforts to match the prowess of the US and other semiconductor giants. The report states, "China is set to launch a new state-backed investment fund that aims to raise about $40 billion for its semiconductor sector, as the country ramps up efforts to catch up with the US and other rivals."

Just like the CHIPS act in the US and EU, the new fund will target developing new manufacturing facilities as well as technologies that will help China achieve smaller technology nodes (7nm and beyond). With these devices, China will be able to accelerate its AI development regardless of the West, and the introduction of new open standards such as RISC-V will allow China to adopt software solutions around the globe (something which sanctions will struggle to prevent, as Internet access is essentially open and unlimited).

Of course, it is possible that the new fund will be targeted by corruption (as were the previous funds), but considering that China has now garnered some experience in this area, the funds will likely go significantly further than before.

Is China unstoppable at this point?

While China will undoubtedly be reliant on the West to some degree (such as food, essential resources, and intellectual property), it is certainly possible that in the next five years, China will be able to eliminate its dependency on outside sources of semiconductors. Should this happen, there will be virtually nothing the West can do to interfere with China’s semiconductor industry unless it resorts to cyberattacks that specifically target foundries.

Another danger that the West now faces is that if China is able to meet its own demands for high-end semiconductors, then Taiwan could become a more viable target, as China would no longer need the services provided by TSMC (these services are already limited). Thus, a truly independent China would have a significant degree of immunity against outside economic sanctions. 

However, one area that China has often struggled with is creativity, and as a nation, it heavily relies on Western creativity to design new products. If China were to become independent in the future, it would need to encourage a degree of creativity not currently seen in the country, and this could quickly escalate to riots and civil wars against the authoritarian government (remember, closed minds stop thought crimes).

It's worth noting that while China has historically been seen as a nation that prioritises replication over innovation, recent advancements in sectors like AI and green energy indicate a shift towards more original research and development. According to a report by Odd Arne Westad on Foreign Affairs titled What Does the West Really Know About Xi’s China? China has been increasing its R&D spending year-on-year, aiming to foster a culture of innovation.

Overall, China has managed to overcome numerous challenges in the past decade, and the numerous actions against it by the West have only strengthened its resolve. If China is tested too much by the West, any control and influence that the West had will be lost.