China has begun a series of investigations into key figures responsible for shaping chip policy and investment, raising questions about the impact on Beijing’s blueprint for challenging US dominance of a US$550 billion industry.
The top anti-graft agency this week launched an investigation into the minister who spearheads the country’s plan to build a world-class chip industry and wean itself off US silicon. Chinese Minister of Industry and Information Technology Xiao Yaqing (肖亞慶), whose agency oversees giants from Huawei Technologies Co (華為) to Xiaomi Corp (小米), became the most senior sitting cabinet member to face a disciplinary probe in almost four years.
The same day, Caixin reported that Ding Wenwu (丁文武), head of a high-profile state-backed fund that invested tens of billions of US dollars in the semiconductor industry, was unreachable after he became the target of a probe.
Photo: Reuters
Beijing has not linked the two cases nor specified allegations beyond legal and disciplinary contraventions.
However, they come on the heels of several cases since late last year that have unnerved an industry accorded priority status by Chinese President Xi Jinping (習近平) and long accustomed to government funding and support.
Just days before Xiao’s probe was announced, Caixin reported that an investigation had also been launched against Zhao Weiguo (趙偉國), who had served as the chairman of Tsinghua Unigroup (紫光集團) before that company — once regarded as one of China’s national champions in semiconductors — collapsed under a mountain of debt.
Zhao had publicly fought a US$9 billion bailout of Tsinghua Unigroup, led by state-backed funds, before he was ousted from the group.
“The Chinese Communist Party is deadly serious about advancing China’s capacity and self reliance when it comes to the chip sector. This is vital to the party,” said Alex Capri, a research fellow at the Asia-based Hinrich Foundation. “These important figures take on positions highly instrumental for advancing China’s chip industry, but it is not 100 percent clear whether they are completely toeing the party line. At the same time, the party is trying to control more and more of the tech sector.”
The Chinese Ministry of Industry and Information Technology did not respond to faxed inquiries, while representatives for the IC fund were not available for comment. Ding and Zhao did not answer phone calls from Bloomberg News seeking comment.
Xiao’s ministry and Ding’s fund — the National Integrated Circuit Industry Investment Fund Co (國家集成電路投資基金) — are instrumental in Beijing’s struggle with Washington for tech supremacy. They often act in concert to spur development of the semiconductors crucial to everything from phones to vehicles, as well as future applications in artificial intelligence and robotics.
The probe into Xiao raises questions about the effectiveness of a campaign that has swallowed billions of US dollars in funding, but has yet to produce technologies to truly challenge Silicon Valley.
His plight caught many by surprise. One senior executive at a major electronics maker was still preparing to meet with the minister to discuss supply chain issues before the news emerged, a second person familiar with the arrangement said, asking not to be identified as they were discussing a sensitive topic.
The minister also spearheads China’s efforts to build technologies from aviation to networking, and supports the nation’s most promising start-ups in areas from chipmaking to biotech.
While Xiao’s agency also oversees automobiles and heavy industry, Ding’s fund is the signature Beijing-controlled vehicle that drives government capital into the sector. Better known as the “Big Fund” in the industry, it has made a series of high-profile investments including in Yangtze Memory Technologies Co (長江存儲), China’s biggest producer of memory, and top chipmaker Semiconductor Manufacturing International Corp (SMIC, 中芯).
Yangtze Memory, which Unigroup controlled before its bailout, is now seeking to oust Zhao from its board, a person familiar with the matter said, asking not to be identified as they were discussing internal deliberations.
A representative for the company declined to comment.
Xiao is the latest of several industry honchos caught up in investigations, with opaque allegations and uncertain outcomes. Graftbusters have yet to publicly link any of the investigations into the chip industry figures.
Xiao’s ministry is also the regulator for the country’s heavy industry, automobile, telecom and electronics sectors. Prior to his political career, Xiao mainly worked in the aluminum industry and was president of Aluminum Corp of China (中國鋁業) when it bought a US$14 billion stake in Rio Tinto Group with Alcoa Inc in 2008.
The probes are unfolding weeks before the Chinese Communist Party’s 20th congress later this year, which is expected to reshuffle the country’s leadership. Xi, who is expected to secure a third term in the shake-up, has consolidated power over the past decade in part due to an enduring corruption crackdown that brought down dozens of former top cadres.
However, the series of official notices are bound to reverberate among the tightly knit semiconductor circle.
“I don’t think it paralyzes the chip industry, but it scares the living daylights out of whoever is the next person in line to run the big fund,” said Jordan Schneider, a senior analyst at Rhodium Group and host of the China Talk podcast. “It’s also likely that the investing will become more conservative, because it’s easier to say that failure was because of corruption, than to own up to the fact that when you’re doing this sort of thing there inevitably is wasteful investment.”
Critics of Beijing’s top-down policies have pointed out the enormous inefficiency that can result from freely doling out subsidies.
Local media have reported about companies with scant experience winning incentives or grants for pursuing research, while others point to a persistent lack of genuine breakthroughs. Powerful local interests have chased government money by championing projects in the hopes of securing subsidies and, at times, political prestige.
About 15,700 new semiconductor companies registered from January to May last year, three times the number from the same period the previous year, an analysis by the South China Morning Post found.
Last week, Bloomberg News reported that SMIC likely advanced its production technology by two generations, defying US sanctions.
Yet experts said it still lags by far sector leaders Taiwan Semiconductor Manufacturing Co (台積電) and Samsung Electronics Co.
“Perhaps they’re looking for ‘fall men’ for an industrial policy, which hasn’t quite sort of borne the fruit that it was initially promised,” Schneider said, referring to the recent probes.
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