China shut down a third state-backed investment fund to boost its semiconductor industry and become less reliant on other countries for both using and making wafers. “Chip sovereignty” refers to prioritizing the needs of the Chinese people.
The China National Integrated Circuit Industry Investment Fund, or “the Big Fund,” has had two past versions: Big Fund I, which ran from 2014 to 2019, and Big Fund II, which ran from 2019 to 2024. Public records show that Big Fund III, which is worth 344 billion yuan ($47.5 billion), is bigger than both of them. Big Fund II was a lot bigger than Big Fund III.
The size of Big Fund III exceeds expectations, and it comes after Huawei recently increased its reliance on Chinese providers. This shows that China is serious about becoming self-sufficient in chip production. Another thing it does is tell us that the chip war between China and the West is two-way. 
The U.S. and Europe aren’t the only ones who want to depend less on their longtime tech foes. More than just the United States and its partner products are in danger; China also has good reason to be worried about its supply.
Taiwan is the most important place to think about when it comes to making chips. If China were to take over its factories, it would have severe consequences for the United States and its allies. For example, Taiwan Semiconductor Manufacturing Co. (TSMC) makes about 90% of the world’s most complex chips.
Bloomberg heard from sources that ASML and TSMC, both based in the Netherlands, have ways to shut down chip-making machines in case China invades Taiwan.
According to U.S. Commerce Secretary Gina Raimondo, China produces about 60% of the heritage chips used in cars and other machinery.
The chip war includes both old and new chips, and the results are not all that good.
China says that U.S. strategy is backfiring because exports from big U.S. chip companies are going down, and other people agree.
For Nvidia, it’s a tough choice “between maintaining the Chinese market and navigating U.S. tensions,” Hebe Chen, a market expert at IG, told Reuters not long ago. After U.S. sanctions stopped it from shipping its most advanced circuits, the company made three chips just for China. However, competition drove it to set a lower price than it might have liked.
However, if Western chip companies can prevent China from producing and acquiring more advanced chips at the same pace as its competitors, their financial difficulties may prove to be worthwhile.
There are signs that restrictions could hurt China the most, like if the country’s AI companies can’t get Nvidia’s latest chips, or if they make it harder for SMIC, the market leader, to make its own.
Big Fund III itself is proof that China is getting hot. According to reports, the money will be used to make high-bandwidth memory chips as well as large-scale wafers, just as the previous funds were used. AI, 5G, IoT, and other areas use these chips. They are called HBM chips.
The most important thing to know is its size.
With the help of six large state-owned banks, Big Fund III is now bigger than the $39 billion that the U.S. government will give to chip production as part of the CHIPS Act. But the total amount of money the federal government has available is $280 billion.
The EU Chips Act, which costs €43 billion, is small compared to both of them, as is South Korea’s $19 billion support package. The markets probably noticed this.
When Chinese chip companies heard about Big Fund III, their stock prices went up because they stood to benefit from the new money. Bloomberg did say that Beijing’s efforts in the past haven’t always paid off.
In particular, “China’s top leaders were angry that they had not been able to make semiconductors that could replace U.S. circuitry for years.” The news source also reported the firing of the previous head of the Big Fund and the ongoing probe for cheating.
Even in the absence of cheating, significant changes to the semiconductor manufacturing process take time. This takes time in both the US and Europe, but there are some interesting new trends.
For example, the French deep tech company Diamfab is working on diamond electronics that could help the green shift, especially in the car business. That won’t happen for a few years, but these are the kinds of Western innovations that could be just as interesting to watch as what Chinese companies that have been around for a long time do.
