China to pivot $50 billion chip fund to fighting U.S. squeeze as trade war escalates — country to back local companies and projects to overcome export controls

Yahoo

15 hours ago

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Executives of China's Big Fund III are re-adjusting its purpose to address the most notorious gaps in the country's semiconductor industry, namely lithography tools and electronic design automation (EDA) software. Previously, it was designed to support makers of fab tools and the semiconductor ecosystem in general. This recalibration comes as the U.S. intensifies efforts to restrict the access of China-based chip designers and chipmakers to tools and technologies vital for advanced semiconductors.
The main purpose of the third installment of the National Integrated Circuit Industry Investment Fund, also called Big Fund III, was to strengthen local development and manufacturing of chipmaking equipment. This push has become urgent in recent years because companies like ASML, Applied Materials, KLA, Lam Research, and Tokyo Electron are now barred by export controls from selling their most advanced tools to Chinese entities without an export license.
However, 'fab tools' is a really big product category as fabs use hundreds of different types of tools. Some of the China-made tools, such as etching or deposition machines, are already world-class. Others, such as lithography tools, are decades behind those produced by ASML. Apparently, managers of the Big Fund III want to focus on lithography equipment rather than on devices that are already good enough and which will evolve themselves going forward.
As companies like Cadence and Synopsys now also need an export license to supply their advanced EDA tools to customers in China, Chinese chip designers need domestic design software to develop processors for sophisticated nodes. Therefore, the Big Fund III will focus on supporting local makers of EDA tools.
Bloomberg reports that the Big Fund III is preparing to make its first significant contributions in accordance with the renewed plan. Among possible recipients are Shanghai Micro Electronics Equipment (SMEE), which produces lithography tools, and Empyrean Technology, which develops electronic design automation software. There is also speculation that Huawei may attempt to build domestic lithography systems to counter reliance on overseas suppliers, though it is unlikely that it will need money from the Big Fund III.
Executives overseeing the Big Fund initiative also plan to encourage the merger and concentration of domestic companies through acquisitions or other strategies in a bid to build stronger companies capable of producing more inventions.
One of the reasons to streamline spending of the Big Fund III is the fact that it has gathered only part of the planned $47 billion so far, as Chinese authorities (including federal and local) have become more selective in allocating resources after earlier efforts produced limited breakthroughs, according to Bloomberg. However, Officials familiar with the matter expect the funding gap to be temporary, Bloomberg reports.
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