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The Short-lived Fate of China’s Chip Manufacturers

Recently, a number of scandalous projects in China’s semi-conductor chip industry came to a halt mostly due to a lack of funding. Local governments often desperately scramble for chip projects to show their political achievements. They have usually come up with the initial funding to secure the land and building but then suffered most of the loses if the project failed. Meanwhile, there are also groups that take advantage of policy loopholes and, because they lack accountability, they deceive those who do investment and funding.

Below is a list of reported cases.
1. HSMC, Wuhan Hongxin Semiconductor, is facing a large funding gap. As the single largest investment project in Wuhan in 2018, HSMC Wuhan Hongxin is reported to be a 128 billion-yuan (US$18.7 billion) project. It set the ambitious goal of manufacturing 30,000 units of 14 nm chips each month then followed by making 30,000 units of 7 nm chips. In 2019, it hired Jiang Shangyi, former Chief Technology officer from TSMC, as its CEO. Public information shows that in 2019, Wuhan Huanyu, a project subcontractor, sued Wuhan Hongxin and Wuhan Torch, the general contractor of the first phase of the project, for 41 million yuan (US$6 million) in delinquent payments. Since then, Wuhan Hongxin’s account has been frozen, and more than 300 acres of land worth 75.3 million yuan (US$11 million) in the second phase were also seized. It was reported that this seized land was previously used by Hongxin as security for mortgage loans. “Wuhan 2020 City-level Major Projects under Construction Plan” disclosed that, at end of 2019, Hongxin had received a total of 15.3 billion yuan in investment. In January this year, it had to use the ASML lithography machine it owns as collateral and borrowed 580 million yuan from Wuhan Rural Commercial Bank to cover the immediate cash shortage. However, that number is still far below the funding shortage of over 100 billion yuan.
2. In May, after pouring in US$1.2 billion in investment funds with thousands of acres of buildings being vacant, Globalfoundries ended a US$10 billion in chip manufacturing project in Chengdu of Sichuan province. This semiconductor project only lasted about 19 months.
3. On July 10, Dekema (Nanjing) Semiconductor Technology Co., Ltd. formally filed for bankruptcy. The project is claimed to be a US$3 billion investment. As early as 2019, the company was accused of a lack of credibility and was behind in payments for wages, vendors and taxes payments.
4. Beginning in 2019, Dehuai Semiconductor in Huaian of Jiangsu province defaulted on a large amount in employee wages, supplier loans and general loans. It now faces 10 lawsuits. As of the end of 2019, the Dehuai project received 4.6 billion yuan in investment funds, but has over 100 million yuan in outstanding debts.

Source: Sina, August 2020