China Aggressively Targets Support for its Domestic Semiconductor Industry

In June 2014, Chinas State Council announced the Guidelines to Promote National Integrated Circuit Industry Development (Guidelines). The Guidelines are intended to have 50 percent of chip consumption in China sourced from Chinese domestic production by 2020. In addition to traditional subsidies, the Guidelines established the National Integrated Circuit Investment Fund (the Fund) to invest in the Chinese industry. The Fund includes over USD 20 billion and is financed through, for example, the Ministry of Finance, state-owned banks, and state-owned enterprises. Tens of billions more in support is available from similar provincial funds established to support the industry located in the respective provinces.

On July 27, 2016, the State Council and the Communist Party Central Committee released the Outline on the National Information Technology Development Strategy, which is intended to provide a blueprint for accelerating Chinas development of its IT industry. Among many other aspects, the Strategy appears to double-down on Chinas objective to reduce reliance on foreign suppliers of integrated circuits.

One recent example of Chinas aggressive support for the Chinese semiconductor industry is the government-brokered acquisition by Tsinghua Unigroup, Chinas largest chip designer, of a majority stake in Wuhan Xinxin Semiconductor Manufacturing Corporation (XMC), a leading Chinese chip maker owned by the local government. Back in March 2016, XMC received substantial government support from the Fund and from provincial sources to build a USD 24 billion memory chip production base focusing on NAND flash-memory and DRAM chips.