China Closes $29B ‘Big Fund II’ To Catch Up In Global Semiconductor Race – CSJ

The Chinese government has raised about RMB200 billion (US$29.08 billion) for the second China Integrated Circuit Industry Investment Fund to back homegrown chip developers and accelerate the country’s ambition of building a world-class semiconductor industry.

The second national integrated circuit fund, also known as "Big Fund II," is in discussion with limited partners to decide its detailed investment strategies, according to China Securities Journal, a publication designated by the Chinese securities regulator, China Securities Regulatory Commission (CSRC) on Friday. The publication reported in March 2018 that a scheme of launching the second fund was approved by the country’s chief administrative authority, the State Council.

The new fund, which initially targeted to raise between RMB150 billion (US$21.80 billion) and RMB200 billion (US$29.08 billion), was expected to attract capital injections from the central government, state-owned corporations, and some local governments, said people familiar with the matter cited by Economic Information Daily in May 2018. Economic Information Daily is an economic newspaper affiliated to the government mouthpiece, Xinhua News Agency.

The sources said that the second fund will focus on investments in emerging industries and companies that can help China implement its national strategy of shrinking reliance on imported chips. The new fund will also seek investment opportunities in the fields of intelligent vehicles, smart grids, artificial intelligence (AI), internet of things (IoT), and 5G, the sources added.

The new fund is expected to further promote the national effort to catch up in the global semiconductor industry by raising funds and backing semiconductor start-ups. China is the world’s biggest consumer of semiconductors, as well as the second-largest chip equipment market worldwide, behind only South Korea. The country, however, imported US$312 billion worth of chips in 2018.

To make China become self-sufficient in chips, the State Council introduced the "National Integrated Circuit Industry Development Guidelines" in June 2014, in which the authority committed to accelerating the development of the domestic semiconductor industry. It set a near-term goal of growing annual domestic semiconductor revenue from 2015 to 2020, and become a global leader in all segments of the semiconductor supply chain by 2030.

The second China Integrated Circuit Industry Investment Fund comes about five years after the debut fund reached the first closing at RMB138.7 billion (US$20.16 billion) in 2014, according to a statement dated October 14, 2014, on the website of the Ministry of Industry and Information Technology (MIIT). Wang Zhanpu, a former director of finance at the MIIT, has chaired the fund since its inception.

The Ministry of Finance was the largest stakeholder of the debut fund with a 36.74% share. China Development Bank Capital held a 22.29% share, followed by China Tobacco with an 11.14% share, according to a filing by Shenzhen-listed Nantong Tongfu Microelectronics in February 2018.

The predecessor invested in the series D round of Shanghai-based programmable logic device and chip manufacturer Anlogic in June 2019. The fund also led a series B round worth RMB100 million (US$14.53 million) in Chinese integrated circuits designer Southchip Semiconductor Technology in May 2019.

In November 2018, the fund teamed up with several government funds and venture capital firms in China to inject capital into Chinese semiconductor maker Rockchip. Financial details of the round were not disclosed.

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