China’s $47.5 billion chip fund will likely focus on AI amid U.S. export curbs, NYU professor says

China set up a multibillion-dollar state-backed investment chip fund last week — and one observer says it will likely focus on advanced chips for AI and establishing the entire supply chain.

“Fund 3 will focus on [establishing] the total supply chain. Now, for Fund 1 and 2, they put a lot of focus on the equipment and materials related areas,” Winston Ma, adjunct professor at NYU School of Law said Wednesday.

“And now, because [Fund 3] is established in the middle of the AI boom, I believe they will put more effort, emphasis on advanced computing chips and memory chips for future AI,” Ma told told CNBC’s “Squawk Box Asia.”

China has piled 344 billion Chinese yuan ($47.5 billion) into a third investment fund that aims to boost its domestic semiconductor industry amid an escalating technology war with the U.S.

The China Integrated Circuit Industry Investment Fund, also known as the National Integrated Circuit Industry Investment Fund and the Big Fund, is part of China’s efforts to reduce foreign reliance in its domestic chip industry. It comes as countries in the West, such as the U.S. and the Netherlands, limit its access to advanced technology. 

The new fund will be the largest of three funds so far. The first two funds raised 138.7 billion yuan and 204 billion yuan in 2014 and 2019 respectively.

“You could say this capital is so critical to the Chinese semiconductor sector. It is indispensable because these companies are struggling with the global capital markets,” said Ma, citing the reverse Committee on Foreign Investment in the United States executive order from the Biden administration in August, which “limits foreign capital into China’s critical technology sectors, including semiconductor.”

“So this is not something that China wants to do, it is almost a must-to-do,” he added.

In a blow to U.S. sanctions, an analysis of Huawei’s Mate 60 Pro smartphone by TechInsights revealed an advanced chip made by China’s top chip maker, SMIC. The smartphone is also said to be equipped with 5G connectivity – U.S. sanctions had aimed to block Huawei from accessing this technology.