Corruption is sending shock waves through Chinas chipmaking industry – MIT Technology Review

It remains unclear whether the failure of Unigroup directly triggered the anticorruption earthquake within Big Fund. However, the strategy that the latter has takenthrowing massive investments against the wall and seeing what stickscan fail miserably. According to longtime observers, that strategy is also the perfect breeding ground for corruption.

This is the least surprising corruption investigation Ive heard of for a while, says Matt Sheehan, a fellow at the US think tank the Carnegie Endowment for International Peace. Not because I know Ding Wenwu is personally corrupt, but when you have that amount of money sloshing around in an industry, itd be way more surprising if there isnt a major corruption scandal.

A significant part of the problem was a lack of precision, says Sheehan. China knew it needed to invest in semiconductors but didnt know what exact sub-industry or company to prioritize. The country has been forced to learn by trial and error, feeling its way through issues like the bankruptcy of Unigroup and the expanding technology blockade by the US. The next step should be more targeted investments into specific companies, Sheehan says.

That might mean a new boss for the Big Fundsomeone whos better versed in getting financial returns, says Paul Triolo, a senior VP at the business strategy firm Albright Stonebridge, which advises companies operating in China. Many of the Big Funds managers came from government backgrounds and may simply have lacked the relevant experience. Ding, whos under investigation now, used to be a department director at Chinas Ministry of Industry and Information Technology.

You need competent people to run this [Big Fund] that understand the industry, finance, and are not going to fund projects that dont have a sound commercial basis, Triolo says.

Ultimately, these investigations may end up being positive for Chinas semiconductor industry because they highlight the limitation of politically driven funding and may push the Big Fund to be managed on a more market-based basis. Beijings appetite for experiments is waning as its worries about self-sufficiency intensify. They cant afford to squander $5 billion on fabs that arent going to be viable, says Triolo.

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Corruption is sending shock waves through Chinas chipmaking industry - MIT Technology Review