In 2015, a little-known company run by a real estate mogul awakened the world to China’s ambitions in semiconductors, the underlying technology that powers computation. With state funding and political backing, the company surprised the company by offering $23 billion to acquire American chipmaker Micron.
Six years later, China’s microchip champion looks like a national disappointment. The company, Tsinghua Unigroup, said this month that one of its creditors had begun bankruptcy proceedings, raising the possibility that it could be broken up.
Tsinghua Unigroup’s financial fortunes have been an unpleasant setback for Chinese officials, who have sought to use state-guided funds and plan to pull even with the United States in a competition. increasingly fierce about the future of technology. Once an exemplar of the power of state-directed capitalism, Tsinghua Unigroup is emerging as a cautionary tale about the waste that can result from misplaced investments and subsidies.
For Chinese economic planners, however, that may not matter. Over the past two years, market incentives such as increased subsidies from Unigroup books have fueled the microchip boom. According to an analysis by state media, China created 58,000 semiconductor companies between January and October 2020 – about 200 per day.
While many of these companies will fail, confidence in Beijing is that a few can make a breakthrough. In other words, it’s technology – not finance – that matters.
“It would be a failure if the technology turned out to be unusable,” said Dan Wang, technology analyst at Gavekal Dragonomics, a research firm. “Tsinghua Unigroup has trained a new generation of semiconductor engineers and established a trusted position in memory chip manufacturing.”
A better way to think about China’s chip ambitions, he added, is in terms of the country’s space program. Profits, at least in the short term, are not the issue. Instead, the goal is to achieve self-sufficiency in manufacturing the tiny chips that make everything from cars to rockets and supercomputers work.
The stakes are very high. As relations between the United States and China have soured, the US chip bans have dealt a blow to Chinese companies such as Huawei, the telecoms infrastructure giant.
Few companies cut to the core of technology competition like the Cold War era between China and the United States like Tsinghua Unigroup did.
The 2015 bid to buy Micron set off alarm bells in Washington, where the move was seen as a stark example of Chinese companies using state funding to buy sensitive technologies wholesale. cold. Backed by a multi-billion dollar state-run semiconductor fund, Tsinghua Unigroup appears to be a Chinese game to buy its way into a leading position in the vital microchip industry.
Tsinghua Unigroup’s bid for Micron, which was unsuccessful, began a string of actions by US regulators aimed at curbing China’s ability to fully acquire sensitive technology companies. It was an early stage of a tougher US-China tech rivalry, which eventually led to the US blacklisting Chinese companies over human rights and national security concerns. .
More than a semiconductor holding company rather than a well-known innovator, Tsinghua Unigroup has grown rapidly in the past six years as the leader of real estate mogul, Zhao Weiguo, has spent billions of dollars taking over several the country’s most promising microchip company, eventually becoming one of China’s largest smartphone chip design companies.
Mr. Zhao also struck premium deals with some of the most well-known US brands. In a deal, Unigroup secured a $1.4 billion investment from Intel to develop smartphone chips. In another plan, Unigroup took over a controlling stake in HP’s China storage and server business, H3C Technologies. It also holds shares of Western Digital, signs a strategic partnership with Dell, and joins IBM’s chip licensing scheme.
To finance it all, Mr. Zhao used the firm’s solid political background, raising money from state funds allocated to help China catch up with foreign chip manufacturing capabilities.
Tsinghua Unigroup is a subsidiary of a company controlled by China’s prestigious Tsinghua University, the alma mater of President Xi Jinping. That company also counted the son of former Chinese president Hu Jintao as party secretary – a politically important role to facilitate communication with the Chinese Communist Party.
“Tsinghua Unigroup is more a political success story than a technology success story,” said Wang, adding that the geopolitical tensions caused by Tsinghua Unigroup ultimately helped. for some of their business. Unisoc, the company’s chip design division, received orders because Chinese companies were banned from using American chip designers like Qualcomm.
Tsinghua Unigroup did not respond to an email request for comment.
Advanced calculation is unlikely to change the direction of China’s policy. This year, as officials unveiled a five-year plan that meticulously outlined key governance initiatives, they outlined ambitious goals for the tech industry and emphasized the importance of it is for national security. Reminiscent of Made in China 2025, an earlier scheme that helped Unigroup fund the government, it was hoped that despite the waste, enough money would find its way into the hands of those who could afford it that the miracle would happening.
Some money has had an impact. Local companies have made leaps and bounds in microchip design, and the foundries that make microchips – with a sophistication far behind the most advanced competitors for many years – have found work. doing good business by creating the necessary sensors for devices like smart devices and cheaper smartphones.
But progress is generally very slow. China’s massive investment has produced little sign of its dependence on foreign microchips. According to IC Insights, an American semiconductor research company, even after spending tens of billions of dollars on the industry, China’s domestic chip production only meets 15.9% of chip demand. in 2020, only 15.1% higher than 2014.
However, geopolitical competition can come into play when subsidies fail, by better aligning China’s most capable business firms with national initiatives, Mr. Wang said. to speak.
“With government support, enterprising entrepreneurs, and a huge need to find these technologies, the prospects for success are not bad,” he said.