China Chip Investment Plummets Amidst US Restrictions

Investment in China’s semiconductor industry dropped by one-third this year amidst ever-increasing US export restrictions and a concern around overcapacity on legacy chips, a domestic research firm said.

In the first 11 months of 2024 677 investment deals were concluded, a drop of 35.9 percent year-on-year, while total funding fell by 32.4 percent, according to JW Insights.

The largest single deal was a 10.8 billion yuan ($1.5bn, £1.2bn) round announced in March by memory chip maker ChangXin Memory Technologies (CXMT), which makes DRAM chips, from investors including domestic flash memory designer GigaDevice along with domestic investment groups and banks.

The second-biggest deal was a 6bn yuan funding round by mobile chip maker Unisoc this year ahead of a potential IPO in 2025, JW Insights said.

Trade restrictions

Recently announced US restrictions will soon ban investors in the country from investing in China’s chip and artificial intelligence industries, while a trade blacklist has been expanded to include 140 new companies, including major chip-related firms.

In the third quarter of 2024, the US semiconductor market surpassed mainland China to become the world’s biggest single chip market, JW Insights found.

JW Insights general manager Han Xiaomin said the surge in demand for advanced chips and high-end memory products, driven by the current artificial intelligence boom, has been hindered by supply chain restrictions in China while spurring massive investments in the US, a trend he expects to continue.

State-backed investment now dominates chip investment in China, the firm said, led by the China Integrated Circuit Industry Investment Fund or “Big Fund”.

State-backed investment

The fund launched in 2014 with steadily rising investments reaching 344bn yuan for Phase III, announced in May.

Its biggest investor is China’s Ministry of Finance, with a 17 percent stake and paid-in capital of 60bn yuan, according to Tianyancha, a Chinese business information firm.

The second-biggest shareholder is China Development Bank Capital with a 10.5 percent stake.

In September the Beijing municipal government set up a separate fund worth more than $1bn.

China says it is trying to achieve self-sufficiency in advanced chip technologies, while US authorities say China could use cutting-edge chips to threaten its national security.