U.S. President Joe Biden signed the Chips in Science Act on August 9th. It was passed by the U.S. Senate and House of Representatives at the end of July. According to a passage from the White House, the legislation creates the International Technology Security and Innovation Fund.

The act includes substantial financial incentives for the U.S. semiconductor industry and grants for scientific research. The total amount of funds is $280 billion. The fund consists of $52.7 billion in financial support, $24 billion worth of investment tax credits, and incentives to semiconductor firms in the U.S. 

In addition, billions of dollars in tax breaks are on offer to encourage investment in semiconductor manufacturing. Over the next ten years, companies receiving U.S. subsidies are prohibited from building or expanding semiconductor manufacturing plants in mainland China.

China responded to the CHIPS Act’s passage by stating that it strongly opposes provisions that limit the “normal sci-tech” collaboration between the two countries.

In addition, the anti-corruption watchdog, the Central Commission for Discipline Inspection (CCDI), and state-controlled media outlets announced some corruption cases in the semiconductor industry in July. As a result, personnel were fired and are currently being investigated.

On August 9th, another three senior executives were added to the list. They are the director and deputy general manager of the third investment department and the former general manager of the second investment department of Huaxin Investment Management. 

As Sina News reports, China Development Bank Finance holds 45% of the stakes in this Huaxin Investment Management. This company is the sole manager of the National Integrated Circuit Industry Investment Fund (also known as the chip “big fund”).

Moreover,  Zhao Weiguo, former Chairman of Tsinghua Unigroup, is also under investigation. 

Various sources say Zhao Weiguo is under investigation for possible involvement in transferring interests between his company and the former Ziguang Group’s companies. The deal includes equipment procurement, renovation projects, and the lack of public bidding.

Sources told Bloomberg that top-level Chinese officials are angry at how the tens of billions of dollars funneled into the industry over the past decade haven’t produced any breakthroughs.

Moreover, the investigations have sent shockwaves through the semiconductor industry, which has long relied on top-tier support. The Chinese regime has allocated $100 billion to develop a domestic semiconductor sector.

Beijing launched the anti-Campaign policy

The recent U.S. Act and chip industry corruption investigations have put additional pressure on top Chinese decision-makers.

Linghao Bao, an analyst at Trivium China, said, [quote] “Beijing is growing more anxious to see companies perform.” [end quote]

China has been investing in developing the domestic semiconductor sector in recent years. However, the country still depends on imports for this industry. 

Data from the Observatory of Economic Complexity (OEC) showed that China imported $10.8 billion in semiconductor devices in 2020, making it the world’s third largest importer of semiconductor devices.

To create chips, China needs to have Deep UltraViolet (DUV) and Extreme UltraViolet (EUV) lithography systems from the Netherlands’ ASML.

In addition, Gizmochina mentions data from statistics in their report. For example, Taiwan, South Korea, Japan, the United States, Malaysia, the Philippines, and Vietnam are China’s top seven sources of chip imports worth more than $300 billion. 

However, U.S. moves have made China struggle to achieve its goal.

As reported by the Washington Post, former President Trump authorized an investigation into China’s alleged theft of intellectual property. He also launched sanctions against China for stealing U.S. property. The Biden administration has followed this strategy. 

According to Bloomberg, export restrictions are imposed on China’s largest chip maker, SMIC, and some other producers. 

U.S. officials want ASML to stop selling DUV to China. The company has already halted sales of the EUV machines to China. It makes it impossible for the country to manufacture cutting-edge chips.

Business Wire cites market intelligence group TrendForce on technology industries.

To ensure the competitiveness protection of the U.S. semiconductor industry, the CHIPS Act proposes that companies that receive U.S. subsidies be barred from investing in process technologies below 28 nm in China during the subsidy period.

Under these pressures, China launched an anti-corruption campaign. 

Regarding the possibility of cleaning out corruption in the regime, an expert told Chinese language media outlet Da Ji Yuan that the campaign does not solve the problem at the root. Instead, the main issues are systemic fatal defects and policy failures.

For three decades after 1956, when China first recognized the importance of the chip industry, Taiwan and South Korea’s semiconductor industries were far inferior to those of the mainland. However, the sector failed to develop in China due to political campaigns and fatal flaws in the system.

Xi Jinping, the Chinese leader, wanted to develop the chip industry. Instead, he followed the “Great Leap Forward,” a campaign to organize a vast population to meet China’s industrial and agricultural problems. Therefore, China’s chip industry is in chaos.

 How the rotten tail-projects relate to corruption in chip industry

This video will explain the relationship between two incidents in the property sector and the chip industry.

As we all know, the former Chairman of State-backed Tsinghua Unigroup, China’s one-time chip-making champion, is currently under investigation. But the company filed for bankruptcy and restructuring last year. 

Tsinghua Unigroup’s former president’s investment in real estate.

Tsinghua Unigroup’s development path is inseparably linked to the strategic decisions of Zhao Weiguo, the former chairman. 

According to Sina Finance, Zhao Weiguo went to Xinjiang to invest in real estate, natural gas, and other businesses after establishing Jiankun Investment in 2005. 

The domestic real estate market was in a period of savage growth at that time. 

Zhao Weiguo said he brought around $147,000 to Xinjiang. When he returned, he earned $660 million, equivalent to a 4500% profit. In his perception, the real estate industry makes money as quickly as printing it.

In June 2009, Tsinghua Unigroup appointed him to the Ziguang Group, a core subsidiary. He then continued to invest in real estate. 

Ziguang Real Estate rebranded as Ziguang Technology Service Group in 2016. The company then began developing Ziguang Science and Technology Park projects in Beijing, Nanjing, Wuhan, Chengdu, Suzhou, Xiamen, and other first-and second-tier cities.

Sina News cites incomplete statistics from the Economic Observer. The company acquired over 2,600 acres of land. Most of them are projects that bind industrial parks and residences, especially the Chengdu and Wuhan projects, with large areas and scale.

In August and September 2018, one of Tsinghua Unigroup’s companies, Chengdu Ziguang Science and Technology Development, purchased an enormous residential and commercial land property in Chengdu Tianfu New District. 

This project has a total of seven plots. Of around 2,660,000 square meters (658 acres) of construction area, the industrial and commercial parts account for 55%, while the remaining 45% are residential.

Under the massive acquisition, Tsinghua Unigroup’s assets and liabilities have both increased.

As reported by Sina News, the company’s total liabilities were around $43.7 billion by the end of 2019. 

Last July, Tsinghua Unigroup filed for bankruptcy and reorganization due to insufficient assets to pay off all debts and an obvious lack of solvency last year, ending its glorious era. According to VOA Chinese, the liabilities include Ziguang Group’s debt which has surpassed $29.3 billion since 2020.

Tsinghua Unigroup’s rotten-tail projects

The U.S. is currently moving forward with the chip bill, aiming to revitalize the chip industry and counter China. Furthermore, shady projects can motivate the Chinese regime to crack down on corruption. 

Let’s focus on Tsinghua’s Unigroup unfinished projects.

The Chengdu Tianfu New District is also considered a key project in the local area. In the beginning, the construction ran smoothly. After that, however, according to a buyer, the project couldn’t be sold.

The same thing happened to other projects in Chengdu. Buyers said that they knew the company had problems. Last February, the project was completely shut down. 

Zhao Weiguo, former Chairman of Tsinghua Unigroup, was known for his incredible success in real estate rather than inventing some magical chips. 

However, recent real estate regulations have led to Ziguang Group’s collapse in the real estate sector, capital chain rupture, and unfinished projects.

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