China hits pause on giant chip spending aimed at rivaling US

Bloomberg

China is pausing massive investments aimed at building a chip industry to compete with the US, as a nationwide Covid resurgence strains the world’s No. 2 economy and Beijing’s finances.
Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said. While some continue to push for incentives of as much as $145 billion, other policymakers have lost their taste for an investment-led approach that’s not yielded the results anticipated, the people said.
Instead, they’re seeking alternative ways to assist homegrown chipmakers, such as lowering the cost of semiconductor materials, the people said, asking not to be identified revealing sensitive negotiations.
That would mark a shift in Beijing’s approach towards an industry regarded as crucial to challenging American dominance and safeguarding Chinese economic and military competitiveness. It underscores how the country’s economic ructions are taxing Beijing’s resources and hobbling its chip ambitions — one of President Xi Jinping’s top priorities. That could have ramifications for spending in other critical areas, from the environment to defense.
It’s unclear what other chip policies Beijing is considering, or whether it will ultimately decide to ditch the capital investment-heavy approach that’s worked so well in propelling its manufacturing sector over the past decades. China’s government could still decide to divert resources from other arenas to fund its chipmakers. Representatives for the State Council Information Office and Ministry of Industry and Information Technology didn’t immediately respond to faxed requests for comment.
But the discussions now underway are in stark contrast to Beijing’s prior efforts of pouring colossal resources into the chip industry, including setting up the National Integrated Circuit Industry Investment Fund in 2014.
That vehicle lies at the heart of Xi’s unhappiness with Beijing’s prior philosophy. Known within the industry as the Big Fund, it drew about $45 billion in capital and backed scores of companies, including China’s chipmaking champions Semiconductor Manufacturing International Corp and Yangtze Memory Technologies Co.
Xi’s administration grew frustrated that tens of billions of dollars funneled into the
industry over the past
decade haven’t produced breakthroughs that allow China to compete with the US on a more equal footing. In fact, SMIC and Yangtze, arguably the two most advanced Chinese semiconductor players, were crippled by US sanctions.