US gets chip war chest as China probe sidelines industry chief

The US campaign to recharge its chip sector and reduce its China exposure has hit a big milestone with the passage of the $52.7 billion CHIPS Act.

The legislation will tip $53 billion into domestic chip production and around $24 billion in tax incentives and other measures to build new plants.

As you might expect, China did not feel flattered by this indirect tribute to its practice of growing industries through public funds.

China's chip industry faces its own issues right now, with several of its leaders likely facing corruption charges.
 (Source: Unsplash)
China's chip industry faces its own issues right now, with several of its leaders likely facing corruption charges.
(Source: Unsplash)

Chinese media and officials have described it variously as “a bad joke,” “a push in the wrong direction,” “Cold War zero-sum thinking” and “human destruction of the industry chain.”

Then again, China's chip industry has its own issues right now, in particular the problem of several of its leaders likely facing corruption charges.

Targeting executives

In the biggest development state media revealed Thursday that the most important man in the country's push for semiconductor self-reliance, Ministry for Industry and IT (MIIT) chief Xiao Yaqing, is under investigation.

Xiao, 62, who has been in the post for two years, is being investigated for “suspected violations of discipline and law” – communist party-speak for corruption. He has not appeared in public since early July.

The MIIT is the super-ministry driving the transformation of China's hi-tech sector, from EVs to clean energy to 5G.

As is customary, the party disciplinary body CCDI did not elaborate on the allegations against Xiao, who is the highest profile official to come under investigation for more than five years.

But the probe into Xiao comes as the CDDI is targeting several executives connected to the country's biggest chip investment fund.

One of these is Ding Wenwu, president of the China Integrated Circuit Industry Investment Fund – known as the Big Fund – financial news site Caixin reported Thursday.

The fund had raised 237 billion yuan (US$35 billion) in its two funding rounds so far.

Lu Jun, the former head of Sino IC Capital, the Big Fund's managing company, and Wang Wenzhong, a friend and former classmate who ran a smaller fund in partnership with the Big Fund, were both detained on July 14, Caixin said.

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Yet another executive under official CCDI scrutiny is Zhao Weiguo, the ex-chairman of the Tsinghua Unigroup, once regarded as the national chip champion (see Unigroup $2.5B default another setback to China's chip plans).

While these cases are not necessarily connected, the huge volume of cash being poured into the sector and the traditional cursory oversight make the chip industry a ripe target for various kinds of schemes and bad actors – like the infamous Hongxin fab which closed down without producing a single wafer, squandering CNY128 billion in investor funds.

Even if not, the industry has lost a swathe of its key figures just at the time when the US is advancing, forging fresh partnerships with Korea and Japan and finally getting its own war chest.

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— Robert Clark, contributing editor, special to Light Reading

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