China sets up $47.5B chip fund to propel local semiconductor industry

China has established a 344B yuan ($47.5B) investment fund to boost its semiconductor industry, making it the third round of the government-backed financing pool, Bloomberg News reported.

The third phase of National Integrated Circuit Industry Investment Fund, known as Big Fund III, has accumulated the money from the central government and several state-owned banks and enterprises, including Industrial & Commercial Bank of China, the report added citing Tianyancha, an online platform which collects official company registration information.

The fund was set up on May 24.

The investment push comes amid U.S. curbs aimed at restricting China’s access to advanced chips and equipment, including those used for making artificial intelligence, or AI services. U.S. and its allies including the Netherlands, Germany, South Korea and Japan have also been tightening curbs on the Asian country’s access to advanced semiconductor technology. In March, it was reported that China was poised to raise over $27B for the third phase of the fund.

Several Chinese chip stocks rose on Monday. Semiconductor Manufacturing International (OTCQX:SIUIF) jumped about 7% on the Hong Kong Exchange, while Hua Hong Semiconductor (OTCPK:HHUSF) rose about 11%.

China’s finance ministry is the largest shareholder with a 17% stake and capital of 60B yuan, while China Development Bank Capital is the second biggest with a 10.5% stake, Reuters reported, citing Tianyancha.

There are 17 other investors, including five major Chinese banks, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, and Bank of Communications, with each pitching in around 6% of the total capital, the report added.

The first phase of the fund was set up in 2014 with a capital of 138.7B yuan, while the second phase was established in 2019 with 204B yuan.

The Big Fund has provided financing to Semiconductor Manufacturing International, Hua Hong Semiconductor and to Yangtze Memory Technologies, the report noted.

Earlier this month, the U.S. and China were slated to meet in Geneva to discuss mitigating the risks from advanced AI, The U.S. officials emphasized that U.S. policies would not be up for negotiation and the discussions would be around managing the risks from the technology.

The U.S., China, the EU, Japan and South Korea are among the countries and regions which have stepped up efforts to boost domestic chip manufacturing to stay ahead in the AI race.

Under the CHIPS Act — which aims to increase U.S. semiconductor manufacturing and research, especially in advanced semiconductors — several companies have inked preliminary agreements with the U.S. Department of Commerce to get funds.

Intel (INTC) was awarded nearly $20B in grants and loans, award Micron Technology (MU) with $6.1B in grants, Taiwan Semiconductor Manufacturing (TSM) with up to $11.6B in grants and loans, Samsung Electronics (OTCPK:SSNLF) with up to $6.4B in grants.

Generative AI services have become the talk of the town since the launch of Microsoft (MSFT)-backed OpenAI’s ChatGPT in 2022. Globally, companies have launched their own large language models, or LLMs, which can provide services such as content, image, video and voice generation, to name a few.

Alibaba’s (BABA) Qwen2.5, Tongyi Qianwen 2.0, and Tongyi Wanxiang, Baidu’s (BIDU) Ernie Bot, OpenAI’s text-to-image tool DALL·E 3, Google’s Gemini, Samsung’s (OTCPK:SSNLF) Gauss, Meta Platforms’ (META) Emu Video, Emu Edit, AudioCraft, SeamlessM4T, and Llama 2, and Getty Images’ (GETY) model called Generative AI by Getty Images, are some of the LLMs, among the many, being developed.