In 2013, China was the largest maker of electronics, and the country imported the vast majority of chips required for manufacturing smartphones and PCs, as it had no microelectronics production capabilities of its own. Driven by concerns surrounding dependence on foreign technology, China's State Council launched what it called the 'Made in China 2025' initiative.
The plan aspired to turn China from a global factory into something more lucrative, and included a 70% self-sufficiency in semiconductors by 2025. Over a decade and hundreds of billions in spending later, China has made remarkable progress. Yet, it is still decades away from matching the capabilities of the global semiconductor industry.
While China's Made in China 2025 plan has always been a multi-faceted project aimed at achieving a diverse set of goals across a range of industries, the scope of this story is the semiconductor industry, and we'll focus there.
Initially, China tried to fast-track its way into the global memory industry by acquiring Micron for about $23 billion, which made a lot of sense as the majority of chips consumed by the Chinese industry at the time were memory chips. After Micron rejected the takeover attempt by Tsinghua Unigroup (to a large degree, because the Committee on Foreign Investment in the United States intervened). Local authorities in Fujian, China, established the Fujian Jinhua Integrated Circuit Company (aka Fujian or JHICC), a DRAM maker, which signed an agreement with UMC to develop a DRAM process technology in May 2016, just months before it began construction of its $5.65-billion 300-mm fab in July 2016.
It later turned out that instead of developing its own DRAM technology independently, UMC recruited engineers from Micron's Taiwanese subsidiaries and told them to obtain technical specifications as well as detailed knowledge of Micron's manufacturing processes and related know-how before leaving their employer. A legal battle ensued, and in 2021, UMC reached a global settlement agreement.
In parallel with trying to acquire Micron or acquire its semiconductor production IP using other means, the Chinese government established its China Integrated Circuit Industry Investment Fund (also known as the National Integrated Circuit Industry Investment Fund, and the Big Fund) to directly fund the local semiconductor industry.
The focus of the first phase of the Big Fund (2014 - 2018) was to build basic semiconductor manufacturing capacity and reduce reliance on foreign foundries and memory suppliers; the goal of the second phase (2019 - 2024) was to establish a true semiconductor supply chain that could develop advanced process technologies and build sophisticated semiconductor production equipment (SPE). The goal of the third phase (2025 - 2040) is to make the domestic supply chain fully independent, including building all fab tools and core technology domestically. Somewhere along the line, the Chinese government stretched the Made in China 2025 project to 2030 and then to 2040 when it comes to developing the semiconductor supply chain.
(Image credit: SMIC)
The Chinese government has raised and spent tens of billions of dollars on its Big Fund-backed projects, with The New York Times claiming that it has spent some $150 billion on its semiconductor-related endeavors. While the sum looks formidable, it should be noted that it might be a gross understimation, as government-linked and private companies have also invested tens of billions of dollars in the domestic chip industry.
For example, a recent UBS note to clients indicates that analysts from the company predict that Chinese entities — private, public, and multinational — would have spent about $280 billion on wafer fab equipment (WFE) alone from 2022 to 2028. When combined with other chip-related projects that span from the development of electronic design automation (EDA) tools all the way to the design of actual chips and producing sophisticated raw materials, we are probably looking at tens of billions of dollars more.
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