China grants Unigroup $22bn to boost semiconductor sector

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Chinese state-backed semiconductor group Tsinghua Unigroup is to receive $22bn in funding from government investors to drive up China’s share of the chip market.

China wants a piece of the chip cake…

Tsinghua Unigroup, which is owned at 51 percent by state-run Tsinghua Holdings (via the University of Tsinghua) will receive $14bn from the China Development Bank and $7bn from China’s Integrated Circuit Industry Investment Fund, a $20bn financial group set up in 2014. It is unclear whether the funds will come in the form of an equity investment or credit.

In recent years, China has been trying to steer itself away from dependence on foreign semiconductors, as despite being the world’s second chip consumer, none of the country’s manufacturers figure amongst the world’s top ten, and Chinese companies purchase a large part of their supplies from the US, Japan and Korea. In 2015, President Xi Jinping committed to spend up to $160 billion in the space of 10 years to develop domestic chip production capabilities.

Although the company has not clearly stated what it plans to do with the funding, it is likely that it will use it for foreign acquisitions.

In a 2015 interview, Unigroup chairman and CEO Zhao Weiguo stated that “China’s local chip industry is weak, but the demand is huge. Developing technologies ourselves will take a long time. If you buy other companies, you acquire their businesses, teams and patents.”

Since 2013, Unigroup has purchased a number of chip manufacturing companies, such as Intel’s subsidiary, Spreadtrum, RDA Microelectronics, and a 51 share of HP’s H3C.

In 2015, the company attempted to purchase Micron in a $23bn dollar acquisition, but was blocked by US government, which cited national security concerns.

Stranger Danger!

Defense systems are indeed reliant on the use of semiconductors, and progress in the field would greatly improve China’s military capabilities – and perhaps risk the intrusion of compromised or malicious circuitry in the design and manufacture of chips.

But Weiguo dismissed national security fears, stating that “mergers between big U.S. and Chinese companies are bound to happen. They should be viewed from a business perspective instead of being treated under nationalist and political contexts.”

Even still, China gaining ground on the domestic integrated circuit manufacturing market will inevitably pose a threat to US competitiveness; America’s share of the world’s chip production has already decreased from 30 percent in 1998 to only 13 percent this year, and despite US chip manufacturers calling upon the Trump administration to take measures to support them, such as tax breaks or government subsidies, ambitious projects such as Unigroup’s $30 billion memory-chip production complex could overshadow efforts by American companies to keep up

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