context: Government guidance funds are crucial for restructuring the Chinese economy and guiding strategic technologies. The 'Big Fund', established in 2013, aimed to separate SOEs’ capital management from operations. Despite corruption scandals, misaligned central-local incentives and risk-aversion, the push for tech self-reliance eclipses some deep-rooted governance problems.
The China Integrated Circuit Industry Investment Fund, or the 'Big Fund', began its third round on 24 May 2024, raising C¥344 bn, surpassing the previous two phases combined.
The chip industry needs a long-term investment strategy, better governance and more chip stocks in secondary markets, a Caixin editorial argues.
The Big Fund should attract 'smart people and smart money', guiding non-state sector investment into strategic areas, the editorial suggests, noting
Challenges
- external sanctions and blockades
- dependence on foreign advanced technologies
- domestic overcapacity in low-end legacy chips
Market concerns
- state-led investments lack market principles, independence and effectiveness
- corruption stems from internal incentive failures
- the chip industry’s long supply chains and rapid iterations demand high volume, long cycles and flexibility from investments
Recommendations
- become a more patient investment fund by
- increasing risk tolerance
- investing in early-stage projects
- avoiding crowding out private investment in mature segments
- improve incentives and constraints by
- finding the right leadership style
- correcting the evaluation and compensation systems
- recruiting market-oriented talent
- create synergy with platforms like the STAR Market for efficient exits and sustained investment cycles, which offers the chip industry
- transparent supervision system
- good liquidity
- smooth exit channels
- diverse investment targets
Zhang Xin 张新 Big Fund III president has maintained a low profile, notes an industry insider. Formerly with the MIIT (Ministry of Industry and Information Technology) planning department, Zhang replaced Ding Wenwu 丁文武 in March 2022, who is under investigation for corruption.