THE SEMICONDUCTOR INDUSTRY has been hit with a series of anti-corruption investigations over the past month.
On August 9, the Central Commission for Discipline Inspection announced that three senior executives connected to the management of the investments of the National Integrated Circuit Industry Investment Fund, the main channel through which the government has provided more than $100 billion of state support for the sector, were under investigation for corruption.
In addition, the Commission is sending a team into the Ministry of Industry and Information Technology, whose minister, Xiao Yaqing, is already facing disciplinary proceedings.
The latest investigations follow hard on those of six other senior figures. These include Ding Wenwu, president of the National Integrated Circuit Industry Investment Fund, Lu Jun, president of Huaxin Investment, an asset manager for the Fund, and four top executives of Tsinghua Unigroup, the Tsinghua University-owned chipmaker and technology business beset by debt problems. Yangtze Memory Technologies was one of the Tsinghua Unigroup companies backed by the National Integrated Circuit Industry Investment Fund.
One of the four is former Unigroup Chairman Zhao Weiguo, who is associated with several businesses backed by the National Integrated Circuit Industry Investment Fund. He will be remembered outside China for leading a $23 million takeover bid for the US chip maker Micron Technology in 2015, which Washington blocked at the last minute.
China’s semiconductor industry has expanded rapidly since 2014 under government direction. Yet, despite the massive state support, China has not caught up to the cutting edge of chip manufacturing. Semiconductors remain its largest category of goods imports.
The anti-corruption crackdown reflects top leadership’s frustration with the semiconductor sector’s lack of progress even as its strategic importance grows in the face of US export controls on semiconductor manufacturing equipment and a new multi-billion-dollar programme to develop the US semiconductor sector. A further source of frustration is that the world’s largest supplier of advanced chips is Taiwan.
Public investment in state-backed sectors commonly has large inefficiencies. In this case, these appear to have been greater than usual — returns and outcomes look very poor compared to, say, the investment in the space industry — and worsened by who at this point knows what side deals were cooked up in the shadows of that mountain of money.
The shake-up of the sector that the anti-corruption investigations will cause will likely leave it better managed than before, though not necessarily better able to deliver ‘technological breakthroughs’ to order.