Guangzhou puts US$29 billion into funds for semiconductors

The municipal government of Guangzhou, capital of southern Guangdong province, has invested 200 billion yuan (US$29 billion) to establish funds that will help spur activities involving semiconductors, renewable energy and other hi-tech fields in the city.

This programme follows various technology initiatives recently launched by the municipal governments of Beijing, Shenzhen and Hangzhou to help boost China’s economic recovery, as the country emerges from three years of strict pandemic controls.

Local authorities in Guangzhou announced over the weekend the injection of 150 billion yuan into an Industry Investment Fund of Funds (FoF), which will focus on financing activities in the fields of semiconductors, renewable energy and advanced manufacturing.

The FoF, which will invest via sub-funds and direct financing, aims to attract medium- to large-size projects to Guangzhou and gradually expand into a cluster of funds totalling 600 billion yuan, according to the government statement. An FoF, which is designed to allocate cash to a portfolio of investment funds, is increasingly being used by Chinese local governments to develop preferred industries.

Another 50 billion yuan was set aside by Guangzhou for its Innovation Investment FoF, which will target early-stage hi- tech companies. This fund, which is expected to grow into a cluster worth 200 billion yuan in the next few years, will provide specific support in terms of talent and technology transfer, as well as angel and seed investments to start-ups.

Guangzhou’s latest initiative is in line with calls made by China’s leadership for help to revitalise the country’s beleaguered private sector during the 20th Party Congress last October.

The city’s funding effort would appear to raise the stakes for China in its tech rivalry with the US. Competition in the semiconductor sector, for example, intensified after US President Joe Biden enacted into law the Chips and Science Act last August, enabling Washington to dangle nearly US$53 billion in incentives to lure more chip manufacturing to the US.

Forming government-led funds is not new in China, where state-level financial support has helped develop major industries over the past decades.

The China Integrated Circuit Industry Investment Fund, also known as the Big Fund, was set up in 2014 as the primary financing vehicle for the country’s semiconductor industry, with the initial round of investments reaching more than 138 billion yuan. This fund, however, was engulfed in a corruption scandal last year, with a number of its executives put under investigation.

The government of eastern Anhui province last month announced that it will set up a guidance fund of 200 billion yuan, targeting tech industries. In the same month, the municipal government of Xian, capital of northwestern Shaanxi province, unveiled a plan to form a group of funds worth more than 100 billion yuan to focus on investments in advanced manufacturing. South China Morning Post