China's Big Fund III, the country's state-backed semiconductor investment vehicle, is recalibrating its strategy to address critical gaps in its technology landscape, particularly in lithography systems and chip design software—areas dominated by global leaders like ASML and U.S.-based Cadence and Synopsys. According to sources close to the fund, Big Fund III is shifting focus towards local companies in these high-stakes sectors in an effort to push back against the ongoing U.S. restrictions aimed at curbing China's technological advancements. With a target of 344 billion yuan ($48 billion) in funding, the vehicle has yet to hit its full goal, but the shortfall is expected to be temporary.
This shift in focus follows mixed results from earlier phases of the fund, which saw significant capital investments but failed to produce breakthrough technological advancements, aside from Huawei's notable success with a sophisticated mobile processor in 2023. However, with China's AI sector growing increasingly competitive—fuelled by companies like DeepSeek and Alibaba—the Big Fund III's strategic direction could help China's semiconductor industry catch up to global standards, potentially driving consolidation and deal-making in the sector.
As it prepares to roll out its first major investments, Big Fund III is positioning itself to become the country's largest semiconductor investment fund, outstripping its predecessors. However, with the ongoing geopolitical pressures and trade restrictions, the question remains whether the fund can achieve its ambitious goals and significantly close the gap with Western rivals. Despite setbacks, Beijing remains steadfast in its commitment to advancing the semiconductor sector, seeing it as essential to powering China's tech ambitions.
