Recently, China’s chip industry has faced a severe crisis. Leaders in the Chinese chip field have been arrested and are out of contact. The Chinese authorities have invested vast amounts of money in chips, but the chips were never produced, and the money has disappeared.

At least eight senior officials in China’s semiconductor chip industry were sacked in the past months. Six were related to the Industry and Information Technology Ministry (MIIT) and the National Integrated Circuit Industry Investment Fund (CICF).

On August 2, China Caixin reported that three leaders of Ziguang 紫光 Group, Zhao Weiguo, Diao Shijing, and Li Luyuan, were investigated by relevant departments about two weeks ago. All three are out of contact.

On July 28, China’s Minister of Industry and Information Technology, Xiao Yaqing, was also notified for investigation and review on suspicion of violating discipline and law.

On July 30, the CCP Disciplinary Committee website reported that Ding Wenwu, general manager of the National Integrated Circuit Industry Investment Fund Co., Ltd, was investigated.

The media claim that this wave of investigations involved dozens of people and is still fermenting, including the chairman of listed companies invested with significant funds. The Chinese chip industry has been in turmoil for a while.

China’s chip industry has been a hot spot for investment in the past few years. A so-called “National Fund” was announced by the General Office of the Ministry of Industry and Information Technology of China in 2014. It uses a combination of government funds and social capital to invest in the chip industry.

Media estimates that the Chinese regime has successively invested hundreds of billions of dollars in funding the industry to compete with Western countries. But these vast subsidies have resulted in huge losses and a series of bankruptcies, defaults, and unfinished projects.

According to statistics, there will be about 287 investments in China’s chip field in 2021, a year-on-year increase of 67.8%, with a total investment of $10.8 billion, but at least six chip companies have closed down, burning a total of $2.3 billion.

A typical example is the case of Dehuai Semiconductor, a large chip company in Jiangsu province. In 2016, Dehuai received an investment of $680 million. However, by the first half of 2019, Dehuai could not pay salaries as the investment amount had been squandered, exceeding the usual industry standard. In addition, the amount of money spent on public relations, such as alcohol, cigarettes, eating, and drinking, is impressive.

Xia Yeliang, an economist in the United States, said, “China’s chip industry is rife with fraud and defrauding national scientific research funding is a common phenomenon, and it is getting worse.”

James A. Lewis, vice president, and director of the Strategic Technology Policy Program at the Center for Strategic and International Studies (CSIS), a U.S. think tank, believes that China’s chip industry faces two major problems. One is corruption, an inherent problem of the Chinese economy. The other is the CCP’s suppression of high-tech companies.

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