China is struggling to find money for the third round of funding its Big Fund aimed to finance makers of chipmaking tools with $41 billion due to economic setbacks, reports the Financial Times. Nevertheless, the Big Fund remains committed to its five-year timeline, with a renewed focus on chip production equipment.
During its initial stages in 2014 and 2019, the Big Fund accumulated significant capital, amassing $19 billion and 27.36 billion. The finance ministry played a pivotal role in funding the early stages, then local governments contributed to the effort, whereas entities like China Telecom filled in the remaining financial gaps. However, the sluggish recovery from the coronavirus pandemic has put a financial strain on traditional contributors, including heavy debt problems for some. As a result, the Ministry of Industry and Information Technology, which oversees the fund is currently grappling with challenges in securing money for the fund's new objectives.
From China's perspective, the third incarnation of the Big Fund has to finance companies developing chipmaking tools that cannot be imported to China with restrictions. Meanwhile, there are only a few successful makers of wafer fab equipment in China. The most successful ones — AMEC and Naura — specialize on etching and deposition tools. Meanwhile, there are no competitive makers of say, lithography tools in the country, so the upcoming fund will have troubles finding promising ventures.
"Instead of solely considering investment value, the Big Fund has to take into account the direction of U.S. restrictions when deciding who to bet on, leading to it having more limited options," a China-based analyst told Financial Times.
This, combined with an investigation of corruption, has made the industry more hesitant in its investment choices. Two FT sources with knowledge about the fund mentioned that the money gathered during the second round has not been fully utilized.
Nevertheless, the Big Fund remains committed to its five-year timeline, with a renewed focus on chip equipment.
"It is about time to do another round," said Linghao Bao, an analyst at research group Trivium China. "Not doing it would hurt confidence."
