China-Backed Fund Plays Big Role in Country's Chip Push
July 31 2017 - 5:59AM
Dow Jones News
By Eva Dou
BEIJING -- In China's push to become a semiconductor power, a
discreet government-backed fund is playing an outsize role.
The national chip fund has provided financing for deals seen as
key in helping Chinese companies produce more powerful,
cutting-edge semiconductors. U.S. chip makers Intel Corp. and
Qualcomm Inc. each have participated in deals with Chinese
companies backed by the fund, said its executive vice president Wei
Jun.
"We maintain frequent exchanges with the U.S. side," Mr. Wei
told The Wall Street Journal in a rare interview. "It doesn't
matter if it's international or domestic (companies). We will
invest or participate in the best development projects in this
field in China."
Announced in 2013, the $20 billion government-controlled fund is
the centerpiece of Beijing's plan to dominate the computer chip
industry. Formally known as the China Integrated Circuit Industry
Investment Fund Co., it is known locally as "the Big Fund."
Detractors in the U.S. call it a "slush fund," and American
trade groups warn its deep pockets will subsidize so many Chinese
factories it will flood the sector with overcapacity.
Mr. Wei said at the fund's Beijing offices that he and his
colleagues are a force to keep overcapacity in check by promoting
consolidation.
Mr. Wei pointed to Qualcomm's and Intel's willingness to
co-invest with the fund, despite the criticisms from Washington
that China's massive spending push could distort the market. The
American chip makers previously announced their China investments
but not the involvement of the Big Fund. Intel and Qualcomm
declined to comment on their dealings with the chip fund.
Mr. Wei said he isn't bothered by the criticism from Washington.
"In one sense, this means they are taking us seriously," he
said.
The chip fund is a new model for China's state-driven economic
development. After being criticized by the West for interfering
with market forces, Beijing is shifting from government subsidies
to investment funds that it says operate on market principles.
The Big Fund is an experiment to try to invest government funds
more efficiently, said Wei Shaojun, a government adviser and head
of Tsinghua University's microelectronics department.
But the line between government officials and private-sector
executives in China is hazy. Many executives of the chip fund,
including its head Ding Wenwu and Mr. Wei, are former officials of
China's technology ministry. Mr. Wei said the fund aims to generate
returns for investors, which are primarily departments of China's
central government.
"State-owned investors are the majority, there's no way around
it," Mr. Wei said. "But when I sit here, I'm no longer a government
employee, I'm a company executive. My interests are tied to the
business performance of this company."
The fund had pledged 59% of the total $20 billion by the end of
2016 and will complete investments by 2019, Mr. Wei said. It will
seek to recoup its investments in 2024, although fund shareholders
can vote to give projects a five-year extension, he said.
The national fund has played a pivotal role in shaping China's
chip industry over the past three years. Most of the country's key
chip projects count it as a financier.
The fund also brokered an important merger last year, resulting
in a domestic company that China hopes can become competitive in
capital-intensive memory chips. Memory chips are a main focus for
China, as they are used in all smartphones and other gadgets.
Tsinghua Unigroup, one of China's strongest chip companies, took
over the Wuhan city government-owned XMC, then immediately
announced plans to build China's first world-class memory chip
factory for $24 billion.
Mr. Wei said XMC was too slow-moving as a local state-owned
enterprise.
"With Tsinghua Unigroup partnering with it, we have a greater
chance of success for China memory chips," Mr. Wei said.
Mr. Wei said the Big Fund co-invested with Intel in China's top
chip designer Spreadtrum -- owned by Tsinghua Unigroup -- and with
Qualcomm on a joint venture with China's largest chip manufacturer
SMIC and a chip packaging factory in Jiangsu province.
Intel didn't comment on its $1.5 billion investment, other than
to say that "Intel has a long and successful history of growing its
business in China in a responsible manner that complies with
applicable U.S. national-security controls." Qualcomm declined to
comment on the joint venture.
The fund's executives agree with western critics that
overcapacity is a danger of China's chip drive, Mr. Wei said. But
he sees it as a problem caused by provinces across China trying to
jump on the bandwagon with their own funds and chip projects. He
says he is doing his best to keep such funds in check.
"This industry requires companies to have large scale to
survive," he said. "Small companies will surely die, so there's no
use investing in a lot of small companies."
--Bob Davis contributed to this article.
Write to Eva Dou at eva.dou@wsj.com
(END) Dow Jones Newswires
July 31, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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