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one in 2015 obscure company run by a real estate mogul awakened the world to China’s passion for semiconductors, the core technology that powers computing. Loaded with government funding and political support, the company has stunned with a $23 billion bid to buy the American chip maker. Micron.
Six years later, China’s possible microchip champion looks more like a national disappointment. The company, Tsinghua Unigroup, said this month that one of its creditors filed for bankruptcy, raising the possibility that it could fall apart.
Tsinghua Unigroup’s limited financial wealth is a troubling setback for Chinese officials, who are trying to tap into state-run funds and even plan to lure with the United States in ever-more vicious competition over the future of technology. Once an example of the forces of state-driven capitalism, Tsinghua Unigroup emerges as a cautionary tale about the waste that can come with misplaced investment and subsidies.
It may not matter to Chinese economic planners, though. In the past two years, market incentives like Unigroup’s subsidies that have blown the books have fueled an explosion in all things microchip. According to an analysis by state media, China established 58,000 semiconductor companies Between January and October 2020 – about 200 per day.
While many of these companies will fail, the belief in Beijing is that a few can make breakthroughs. In other words, it’s technology – not finance – that matters.
“It would be a failure if the technology turned out to be unavailable,” said Dan Wang, a technology analyst at Gavekal Dragonomics, a research firm. “Tsinghua Unigroup has trained the next generation of semiconductor engineers and established a trusted position in making memory chips.”
A better way to think about China’s chip ambitions is in terms of the space program, he added. Profit is not an issue, at least in the short term. Instead, the goal is to reach self-sufficiency in the production of small chips powering everything from cars to missiles to supercomputers.
The stakes are high. As the relationship between the United States and China has frayed, American microchip bans have dealt serious blows to Chinese companies such as telecom infrastructure giant Huawei.
Few companies are at the center of the Cold War-like technology rivalry between China and the United States like Tsinghua Unigroup does.
The 2015 bid for Micron sounded alarm bells in Washington, where the move was seen as a blatant example of Chinese companies using government funding to buy sensitive technology wholesale. Backed by a state-run, multi-billion-dollar semiconductor fund, Tsinghua Unigroup seemed like a gamble to buy China’s path to leadership in the critical microchip industry.
Tsinghua Unigroup’s failed bid for Micron prompted a series of actions by US regulators to reduce China’s ability to buy sensitive technology companies outright. It was an early stage of a cooler tech competition between the United States and China, and eventually American blacklisting of Chinese companies on human rights and national security concerns
More a semiconductor holding company than a known innovator, Tsinghua Unigroup has grown rapidly over the past six years when real estate mogul leader Zhao Weiguo has spent billions of dollars to take over some of the country’s most promising microchip companies, ultimately leading to one of China’s largest companies. Smartphone chip design companies.
Mr. Zhao also high-profile agreements reached With some of the United States’ best-known brands. In one deal, Unigroup received a $1.4 billion investment from Intel to develop smartphone chips. In another, Unigroup acquired a controlling stake in H3C Technologies, HP’s China-based server and storage business. It also acquired a stake in Western Digital, signed a strategic partnership with Dell, and participated in an IBM chip licensing scheme.
To finance all this, Mr. Zhao raised money from the company’s strong political background. Government 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, from which President Xi Jinping graduated. This firm also once counted the son of former Chinese president Hu Jintao as party secretary – a politically key role in facilitating communication with the Chinese Communist Party.
Mr. Wang said, “Tsinghua Unigroup is more of a political success story than a technological success story,” adding that the geopolitical tensions that Tsinghua Unigroup helped trigger helped some of their business. Unisoc, the company’s chip design division, has received orders as Chinese firms have been banned from using American chip designers like Qualcomm.
Tsinghua Unigroup did not respond to an emailed request for comment.
The high-profile showdown is unlikely to change the direction of Chinese policy. This year, officials announced to the public five-year plan They set ambitious goals for the tech industry, meticulously planning key governance initiatives, and emphasized their importance for national security. Reminiscent of Made in China 2025, a previous plan that helped Unigroup showered with government funding, the hope is that, despite the waste, enough money gets into capable enough hands for the magic to happen.
Some of the money has already made an impact. Local firms have made strides in designing microchips, and microchip-making foundries have done well by making the necessary sensors for smart devices and devices such as cheaper smartphones—in a complexity that has lagged many years behind their most advanced competitors.
But overall progress has been slow. China’s massive investment has barely curbed its dependence on foreign microchips. According to IC Insights, an American semiconductor research firm, even after tens of billions of dollars spent on the industry, China’s domestic chip production only met 15.9 percent of chip demand in 2020; this is slightly higher than the 15.1 percent share in 2014.
Still, Mr. Wang said that by better aligning China’s most talented entrepreneurial firms with national ventures, geopolitical competition can work where subsidies fail.
“Given the government support, daring entrepreneurs, and the huge need to solve these technologies, the prospects for success are not bad,” he said.
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