China to give chipmakers $27 billion to counter U.S. sanctions — Big Fund III will have further funding rounds

China is assembling the third phase of its Big Fund to invest in crucial semiconductor projects across the country, a move that aims to accelerate the development of advanced technologies, make China self-reliant in the microelectronics industry, and counteract the United States' efforts to limit China's technological advancement.

The third phase of the National Integrated Circuit Industry Investment Fund, or the Big Fund, will pursue the same goal as the first two phases: make China self-sufficient in the semiconductor sector. According to a Bloomberg report, the Big Fund's third-phase vehicle will primarily draw its capital from local governments, state-owned enterprises, and their investment branches, with the central government contributing a smaller portion. This strategy aligns with President Xi Jinping's vision of pooling resources nationwide for significant projects, emphasizing self-reliance in the semiconductor sector.

The first round of Big Fund III funding is designed to raise $27 billion, a relatively modest sum by the Chinese standards for its semiconductor industry. Cities like Shanghai and entities like the China Chengtong Holdings Group and the State Development and Investment Corp. are expected to invest billions of yuan each in the third-phase fund. Meanwhile, the report says the fund will directly support local companies and finance three to four sub-funds to diversify deal sourcing and investment strategies.

The fund's expansion comes as the United States urges its allies to tighten restrictions on China's access to tools required to make chips on advanced product nodes, part of an ongoing chip war for control of the semiconductor manufacturing industry. Back in September, Big Fund II initiated a round to raise $41 billion to support domestic makers of wafer fab equipment. However, for Big Fund III, $27 billion will be spent on essential projects across China.

Since its inception in 2014, the Big Fund (2014 – 2018, ~$100B) and the Big Fund II (2019 - 2023 , ~$41B) have raised hundreds of billions of dollars and acquired stakes in dozens of microelectronics companies. Meanwhile, Bloomberg claims that Big Fund's assets under management are currently valued at around $45 billion, which could be a direct result of the U.S. sanctions against China's semiconductor sector, which significantly hit companies like SMIC (China's foundry champion) and Yangtze Memory Technologies Co. (YMTC, China's top 3D NAND maker).

Despite its successes, the Big Fund has faced criticism for its lack of transparency and accountability, operating primarily behind the scenes. Nonetheless, it is indisputable that the hundreds of billions of dollars poured into China's semiconductor industry made the country one of the most prominent players in this field.