China has been planning to produce its own chips. However, the chip industry in this nation has been facing some challenges.

The South China Morning Post (SCMP) cited a report from Protocol, a U.S. tech news site.

China’s push toward semiconductor self-sufficiency may suffer another major setback if the United States prohibits the export to China of electronic design automation (EDA) software required for an emerging technology known as gate-all-around (GAA). GAA is considered to be important in the development of artificial intelligence chips. Its design encircles a transistor on all sides with extra material to regulate electricity flow.

The technology requires specialized EDA software to design integrated circuits (IC). China lags behind its global peers in this technology. 

One of the reasons for this is that the industry has faced corruption.

In July, the anti-corruption watchdog Central Commission for Discipline Inspection (CCDI) and state-controlled media outlets announced eight cases of corruption involving Chinese officials in the semiconductor industry. They were fired and are under investigation.

The majority of them are prominent members of a Chinese chip monitoring agency and a major state-run chip investment fund. According to Chinese language media Da Ji Yuan, six worked for China’s Ministry of Industry and Information Technology (MIIT) and the National Integrated Circuit Industry Investment Fund (CICF).

In this video, we will get to know more about corruption in China’s chip industry, its origin, and how China’s government is trying to deal with it.

Recent and historical cases of corruption in the semiconductor industry

On July 28, Xiao Yaqing 肖亚庆, China’s Minister of Industry and Information Technology was under investigation. The Minister is the big boss of China’s semiconductor chip industry. CCDI announced that he was under investigation.

On July 30, the second person under investigation was Ding Wenwu, General Manager of CICF. According to state-owned media Caixin, he was investigated for a large fund. 

On September 24, 2014, the National Integrated Circuit Industry Investment Fund’s first phase was launched. The total amount raised was nearly 140 billion yuan ($20.5 billion), which represented 15.6% more than the planned 120 billion yuan (almost $18 billion). 

The fund’s second phase was established on October 22, 2019, with a total scale of more than 200 billion yuan (almost $30 billion). Nikkei Asia reported an amount of 340 billion yuan (about $50 billion) raised by the entity. 

The next case is Lu Jun 卢军 , President of Huaxin Investment. He was announced to be under investigation on July 15. As the most well-known person in charge of the National Integrated Circuit Industry Investment Fund., Lu Jun has participated in many investments in the large chip fund.

In addition to these two people, four others were investigated, including Wang Wenzhong, Yang Zhengfan, Gao Songtao and Zhao Weiguo.

As Caixin reported, Wang Wenzhong 王文忠, co-founder of Hongtai Fund, was under investigation on July 14. Hongtai Fund is the fund manager of CICF’s Shenzhen subsidiary.

Yang Zhengfan杨正凡 works as the Deputy General Manager of Huaxin Investment’s third investment department. Meanwhile, Gao Songtao 高松涛 was the first CICF official to be fired.CCDI announced on November 19, 2021 that Gao was detained for investigation because he was suspected of serious violations of the law.

 Meanwhile, former Chairman of Tsinghua Unigroup Zhao Weiguo 赵卫国, was detained from his home in Beijing and was under investigation at some secret location.

Different sources say that Zhao Weiguo is involved in the investigation related to the transfer of interests between his personal company and the former Ziguang Group’s companies, such as equipment procurement, renovation projects, and the lack of public bidding.

Later, IC Time media reported that Diao Shijing刁石京, former Chairman of Unigroup Guoxin Micro, was under investigation. He used to be Ding Wenwu’s co-worker.

According to MIIT, CDB Finance, China Tobacco, Yizhuang SDIC, China Mobile, Shanghai Guosheng, China Electronics, Tsinghua Unigroup, and Huaxin Investment jointly signed the sponsor agreement and articles of association, marking the official establishment of the National Integrated Circuit Industry Investment Fund, also known as the Big Fund.

The fund focuses on the research of integrated circuit chip manufacturing, including industries such as chip design, packaging and testing, equipment and materials. It also implements market-oriented operations and professional management.

A brief history of corruption in China’s chip industry

Corruption in China’s chip industry has long been occurring since the trade war. The reality of China’s chip backwardness is inseparable from repeated corruption cases.

In the summer of 1993, Ma Bin 马宾, former Deputy Minister of the Ministry of Metallurgical Industry, officially published the book “The Role and Development of the Electronic Information Industry,” unveiling the development process of China’s chip industry from strong to weak in the past ten years of reform and opening up.

By the end of the 1980s and the beginning of the 1990s, China’s national integrated circuit industry’s total investment in fixed assets was only 1.5 billion yuan (about $220 billion). At this point, China’s semiconductor industry has begun to sink, and, since then, the ranking has declined extremely fast.

Local governments, state-owned enterprises, and universities in China imported outdated wafer production lines from abroad between 1984 and 1990. Most of them didn’t have any commercial value. 

The Ministry of Electronics Industry has delegated management of most state-owned electronic enterprises to provincial and municipal local governments, resulting in chaos. Leading cadres could legitimately be allowed to travel abroad for inspection in the name of imported projects.

They could even receive large rebates and arrange for their children to settle abroad. As a result, a strange phenomenon arose in introducing backward technologies throughout the country.

A shocking scam destroyed China’s previous chip hope

According to Apollo and Sina News, the case happened in 2003 with the appearance of the “Hanxin No.1” chip. Chen Jin, the chip inventor, was accused of obtaining hundreds of millions of state funding fraudulently.

Chen Jin used to work as a junior test engineer at Motorola . He joined Shanghai Jiaotong University after returning to China in 2001. Then, he was entrusted with the important task of forming a team to develop “Hanxin,” an essential part of the “863 project”, an integrated circuit undertaking.

He applied for more than 40 projects with different Chinese government departments. After the success of the first chip, he continued later versions. The total project value of more than 100 million yuan (almost $15 million) 

Many other academicians agreed on the evaluation of chip quality. They believed that the development and application technology of the chip reached the world’s level, and it was a milestone for China.

However, insiders revealed “Hanxin No. 1” as a complete fraud on January 17, 2006. The letter was published on Tsinghua University’s digital platform.

Chen Jin first made the first chip with a chip source code downloaded by a former colleague from Motorola’s interior. Later, he secretly purchased a batch of Motorola dsp56800 series chips from the United States. 

He asked migrant workers to use sandpaper to polish off the original Motorola logo on the chips and replace it with the “Hanxin” logo. The investigation showed that Chen Jin committed serious fraud and deception while developing the “Hanxin” series of chips.

Management issues could lead to corruption in the chip industry

China’s top leadership has grown increasingly frustrated by the country’s years-long failure to develop semiconductors capable of replacing U.S. circuitry.

Bloomberg cited sources familiar with China’s top government officials’ thinking. They’re angry at how tens of billions of dollars funneled into the industry over the past decade haven’t produced the breakthroughs from the previous level.

China’s government has allocated more than 100 billion dollars to develop a domestic semiconductor sector to reduce the country’s reliance on the West.

Bloomberg reported that the National Integrated Circuit Industry Investment Fund is a key target of scrutiny. 

Regarding China’s anti-corruption policy, a netizen commented that China had both public state-owned and private enterprises. There’s a possible corruption if there’s any transaction between two parties. 

It’s just like the dual-track price system experimented with by the Chinese government at the beginning of the reform and opening up. The simultaneous existence of two kinds of prices is a hotbed of corruption. Together with the lack of power of the people, justice, and freedom of expression, it makes corruption in Chinese society very serious.

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