US sanctions driving China chip investment splurge

As the US ratchets up sanctions, China throws more money at its semiconductor industry. The sanctions have slowed but not stopped the advance of Chinese semiconductor manufacturing while sales of unsanctioned equipment to China have gone through the roof.

China is raising another US$27 billion from government institutions, state-owned enterprises and the private sector for its National Integrated Circuit Industry Investment Fund, according to recent reports. Also called the Big Fund, it currently has about $45 billion in capital, the reports said.

This will likely bring total financial support for the Chinese semiconductor industry in the five years to 2027 to roughly three times the $52.7 billion in government subsidies to be allocated for US-based chip production under the CHIPS Act.

China’s semiconductor industrial policy appears to be working reasonably well. Despite reports of financial mismanagement and setbacks in production schedules, China’s leading integrated circuit (IC) foundry, SMIC, is now making 7nm chips and is developing 5nm capability, according to reports.

US Commerce Secretary Gina Raimondo and her staff initially designed their sanctions to stop China at 10nm, making the production of advanced smartphone chips impossible. But information publicly available from lithography system makers ASML and Nikon made clear that would not be the case.

The US has thus recently expanded its lithography sanctions from the extreme ultra-violet (EUV) systems made only by ASML of the Netherlands to the most sophisticated deep ultra-violet (DUV) systems made by ASML and Nikon of Japan.

These expanded sanctions took effect in the second half of 2023, too late to stop the launch of Huawei’s Mate 60 Pro 5G smartphones