Gao Songtao is the former vice-president of government fund manager Sino IC Capital—an investment firm in the chip industry. He went missing in July, a sign that a storm was brewing.

Gao was one of the first CEOs accused of corruption in a crackdown by the Central Commission for Discipline Inspection or CCDI—China’s top anti-graft body. 

In the process, it emphasized the decisive role of the Chinese Communist Party (CCP), which some observers say has set the stage for bribery and wasteful spending. All of which ultimately made it harder for China to achieve its self-sufficiency in semiconductors.

According to CCDI releases and local media reports, in the last three months, at least 12 people with strong ties to the semiconductor chip business have been investigated or have gone missing.

“The fight against corruption is a warning,” said a high-ranking official at a local authority semiconductor fund in southern China. Adding that corrupt civil servants “don’t get the business.”

Talking to Financial Times, a senior official at a local authority semiconductor fund in southern China said: “The anti-corruption campaign is a warning to me and my team.”

According to him, corruption had been fostered by civil servants who “do not understand the industry.”

Somebody to blame

Chips are found in many electrical appliances, from smartphones to missiles. 

Chinese leaders don’t want to rely on other countries to manufacture this essential part. But despite decades of investment and hundreds of billions pouring in, China’s chip industry has not done as expected. As a result, self-sufficiency might not be possible for a long time.

At present, China still has to buy many of its chips. It also relies on other countries for the equipment it needs to manufacture them. The U.S. won’t sell Chinese chip companies any tools or high-tech semiconductors. 

Last month, President Biden signed a bill to give the U.S. chip industry $52 billion in subsidies and tax breaks. But, again, the goal was to stand up to China in this field.

China’s chip business got off to a bad start. Its “homegrown” chip in 2003 was revealed to be made in the U.S. 

Still, with state subsidies, businesses may have grown too quickly. China added 22,000 chip businesses by the year 2020. 

In the same year, a Hubei company went out of business after taking millions of local subsidies from the government. 

Last year, Tsinghua Unigroup, a state-backed producer short on cash, was forced to restructure. Its former head is under investigation. 

China has grandiose hopes for itself. It started making chips long after the U.S., South Korea, and Taiwan. However, China makes a lot of chips of low quality. 

Some say that the Big Fund has done its primary job, attracting private investment. Wang Xiaolong, an ICwise consultant, thinks that hunting talents are the most challenging task. However, Beijing’s leaders may not be merciful. As state money has not created the desired outcome, someone has to take the blame. 

Big Fund at a standstill

China’s top anti-graft attacks on key people have confused and scared the industry. That’s according to another regime official who works on semiconductor projects in Jiangsu, north of Shanghai.

An official from Jiangsu told Financial Times that Big Fund investments have reached a “standstill.”

ITjuzi, a corporate data provider, said the fund had spent almost $125 million (880 million yuan) in 2022. Much less than the $1.94 billion (13.8 billion yuan) it spent in 2021.

Beijing hasn’t provided many details about alleged crimes, adding to the uncertainty.

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