China to curb ‘chaos’ in semiconductor industry and hold bosses accountable for risky, loss-making projects

South China Morning Post

October 20, 2020

China will strengthen supervision of new entrants into its “chaotic” semiconductor industry following a number of high-profile collapses during Beijing’s push to reduce its reliance on imports by boosting investment in home-grown computer chip development and manufacturing.

Meng Wei, a spokeswoman with the National Development and Reform Commission (NDRC), said that some companies “with insufficient knowledge of integrated circuit development” have “blindly entered into projects”.

“The risks of low-level construction have appeared repeatedly, and there has even been stalled construction of individual projects and vacant factories, resulting in a waste of resources,” Meng said on Tuesday at a regular press briefing of the economic planning agency.

She added that the NDRC “also noticed that the enthusiasm for domestic investment in the integrated circuit industry is constantly rising”.

In response, she said the commission will work with other state departments to more closely supervise semiconductor projects.
“[The NDRC will] work with relevant departments to strengthen top-level design, pay close attention to industrial planning and layout, and strive to maintain order in industrial development in response to the current chaos in the industry,” Meng said.
The state planner also intends to coordinate with banks and funds in the financial industry to improve assessment when it comes to funding semiconductor projects, she added.
“[The NDRC will] guide local governments to strengthen their awareness of the risks of major project construction,” Meng said, adding that those who are in charge of projects incurring large losses or producing significant risks will be held accountable and responsible.
Meng did not mention company names nor specify whether the NDRC would investigate failed cases.
China, the world’s biggest importer of integrated circuits, has sought to reduce its dependence on imports amid concerns over supply disruptions due to geopolitical tensions between the United States and China – especially after the latest restrictions on Huawei Technologies’ access to chips.
The US last month also imposed restrictions on exports to China’s biggest chip maker, Semiconductor Manufacturing International (SMIC), after concluding there was an “unacceptable risk” that equipment supplied to it could be used for military purposes. The Chinese government is investing billions of dollars in the industry to create national champions.
According to estimates from Shanghai-based private equity firm Winsoul Capital, investment in the Chinese semiconductor industry totalled 60 billion yuan (US$9 billion) in the first seven months of this year, more than double the investment amount in the same period last year.

However, while investment is rising in computer chip manufacturing, the industry has seen a number of failures, raising questions as to how much of the funding already granted is being wasted.

The construction of  Wuhan Hongxin Semiconductor Manufacturing’s new factory in Wuhan was halted this year due to a lack of funding. It was meant to be a key part of a US$20 billion investment push that would help turn the city into a semiconductor manufacturing hub. Earlier this year, a US$100 million manufacturing plant set up by US chip giant GlobalFoundries
and the Chengdu city government ceased operations after sitting idle for almost two years. And in eastern China, a US$3 billion government-backed chip plant owned by Tacoma Nanjing Semiconductor Technology went bankrupt in July after failing to attract investors.

Gu Wenjun, chief analyst at Shanghai-based semiconductor research firm ICwise, said that the government needs to encourage more private investment, rather than rely solely on state funding.

Gu has previously written that companies in traditional industries – including some involved in the production of cement, clothing and even decorations – have made high-profile announcements involving pivots toward semiconductors and semiconductor start-ups.

A search for “semiconductor” generated more than 14,300 results on business registration records website between the start of the year and Tuesday, up from 9,883 in 2019 over the same period.

“The government should set up national guidelines to steer investment in the semiconductor sector – giving support for qualified projects and singling out unqualified ones before they go bust,” Gu said.