China Poured Nearly $2 Billion Into Its Own Semiconductor Industry Last Year

The Chinese government is looking to take the teeth out of the United States’ technological sanctions by using one of the oldest tricks in the book: throwing money at the problem. According to a report from the South China Morning Post, as covered by DigiTimes, the Chinese government poured CNY12.1 billion (US$1.75 billion) in subsidies to around 190 listed semiconductor companies in its territory.

China has been pouring billions of dollars into sectors critical to its technological independence from the locked-in western world as it attempts to catch up to — and then surpass — its opposition in the geopolitical stage.

Those $1.75 billion may seem puny compared to gigantic packages such as the US’ CHIPS Act (a $76 billion semiconductor industry injection with heavy guardrails for any potential Chinese benefits); the EU’s $47 billion pledge; or even TSMC’s planned 11 billion investment into a semiconductor factory in Germany. But China’s direct subsidies into the semiconductor industry are far from the only moving piece in this board.

For one, this year saw China outpacing the U.S. in the number of papers submitted to the prestigious International Solid State Circuits Conference (ISSCC 2023); a tentative step towards finding a way to grant the country its own R&D capabilities that’ll allow it to curb possible future sanctions. And these research achievements are undoubtedly anchored on China’s investment into education, which saw some $179 billion in funding for 2022 alone, with certain universities receiving cash injections to the tune of $5 billion. 

Another element that insulates China from being technologically locked-in is the fact that the country is the nerve center for the world’s extraction, processing, and trade of rare earth metals – the components that go into semiconductors themselves. There’s likely a balancing act happening in this area every day, as sanctions (and their severity) have to take into account the possibility of China turning the tap off (or at least tightening it up a bit) on these indispensable components.

So, no, the $1.75 billion is just the tip of the proverbial iceberg. China’s approach to semiconductor independence is a multifaceted one that’s seen many multiples of the reported $1.75 billion being poured in through multiple venues. Whether or not that’ll be enough for China to catch up with the US, well, that remains to be seen.