China Calls on Foreign Investors to Fund its Domestic Chip Production

China hopes to accelerate its semiconductor industry with funding from foreign enterprises, after the United States banned its companies to supply chips to ZTE Corp. The U.S. investigation into Huawei continues for the same violation to which ZTE pleaded guilty.

CapitalWatch Staff
    Apr 25, 2018 9:22 AM  PT
China Calls on Foreign Investors to Fund its Domestic Chip Production
author: CapitalWatch Staff   

In realizing its goal to cut a heavy reliance on imports, China has invited overseas investors to finance its domestic chip production.

The top state-backed semiconductor fund is looking for a billion-dollar investment, said China's industry ministry today, as tensions simmer over tech transfers between China and the United States.

Plans to develop a Chinese semiconductor market accelerated amid a fierce trade stand-off between China and the United States after the latter recently banned American companies to supply a Chinese mobile equipment company, ZTE Corp, in a move that threatened its survival.

This would be the second fund to support the chip industry sector, a Ministry of Industry and Information Technology official said at a press conference in Beijing, and welcomed foreign enterprises to participate.

The fund, which raised about $22 billion previously, has been a target for U.S. politicians concerned that Chinese firms, flush with state money, could challenge U.S. chip giants like Qualcomm Corp., for whom China is a key market.

The United States Trade Representative referenced China's semiconductor roadmap, which includes national funding, in a trade report that authorized U.S. President Donald Trump to levy up to $100 billion in tariffs against the country.

Jack Ma, the founder of tech giant Alibaba, said in Japan on Wednesday that China needed to control its "core technology" like chips to avoid over-reliance on U.S. imports.

Alibaba last week said it had bought Chinese microchip maker Hangzhou C-SKY Microsystems, though Ma said the timing of the deal was not linked to U.S.-China trade tensions.

"We believe the internet of things is the future. Most things that have electricity will have chips inside. We need cheaper chips, effective chips, inclusive chips that can be everywhere," Ma said during a live-streamed event at Tokyo's Waseda University.

China's state-backed semiconductor fund, commonly referred to as the "Big Fund," has previously backed major local projects including a $24 billion Tsinghua Unigroup memory chip plant that is under construction in the Chinese city of Wuhan.

Beijing says its supportive investment policies are designed to reduce China's reliance on foreign semiconductors, which are one of the country's top imported products by value.

Chinese firms have made several overseas deals to buy foreign chip companies blocked by U.S. regulators in recent years, including a bid by Tsinghua Unigroup to acquire U.S. chip group Micron Technology Inc.

Separately, ZTE Corp said on Wednesday it planned to take "certain actions" under U.S. laws following a ban by the U.S. government on American firms doing business with the company.

Investigation into Huawei Continues

Another Chinese company, Huawei Technologies Co. Ltd., is under investigation by federal prosecutors in New York for, allegedly, the same violation for which ZTE Corp was banned from U.S. sales for seven years.

Since last year, the prosecutors have been investigating alleged shipping of U.S. products to Iran and other countries in violation of U.S. export and sanctions laws.

The probe, first reported by the Wall Street Journal on Wednesday, is being run out of the U.S. Attorney's office in Brooklyn, the sources said. John Marzulli, a spokesman for the prosecutor's office, would neither confirm, nor deny the existence of the investigation.

The Department of Justice in Washington declined to comment.

Huawei, a maker of handsets and telecommunications network equipment, said it complies with "all applicable laws and regulations where it operates, including the applicable export control and sanction laws and regulations of the U.N., U.S. and E.U."

In February, Senator Richard Burr, the Republican chairman of the U.S. Senate Intelligence Committee, cited concerns about the spread of Chinese technologies in the United States, which he called "counterintelligence and information security risks that come prepackaged with the goods and services of certain overseas vendors."

Republican Senators Marco Rubio and Tom Cotton have introduced legislation that would block the U.S. government from buying or leasing telecommunications equipment from Huawei or ZTE, citing concern the Chinese companies would use their access to spy on U.S. officials.

U.S. authorities last week banned American companies from selling to ZTE for seven years, saying the Chinese company had broken a settlement agreement related to Iran sanctions with repeated false statements - a move that threatens to cut off ZTE's supply chain.

The ZTE ban was the result of its failure to comply with an agreement with the U.S. Commerce Department after it pleaded guilty in federal court to conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran.

(Reuters contributed to this article)