Beijing is suspending spending and large-scale investments in the chip industry as China's finances are under heavy pressure and the economy is being battered by the coronavirus outbreak.

(Bloomberg)

[Financial Channel/Comprehensive Report] With China's financial pressure and the new crown virus epidemic hitting the economy hard, Beijing is suspending chip industry spending and large-scale investment.

Top officials are discussing how to move away from costly subsidies that have so far had little effect and fuel corruption and U.S. sanctions on China, according to people familiar with the matter.

Bloomberg reported on Wednesday (4th) that officials have recently discussed whether to provide additional incentives for domestic semiconductor companies, people familiar with the matter said, and many believe it will be difficult to raise large amounts of money after Beijing has invested huge sums of money in the past few years to fight the new crown virus.

While some continue to push for incentives of up to 1 trillion yuan, policymakers have lost interest in semiconductor investments that have not yielded expected results.

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China's fiscal deficit has pushed up to a record in 2022, squeezed by weak tax revenues, falling land sales and the cost of containing the epidemic.

Instead, officials are now asking local semiconductor material suppliers to cut prices to support domestic customers, and they are seeking alternative ways to help local chipmakers, the people said.

The report pointed out that this will mark a change in Beijing's attitude towards the semiconductor industry that challenges US dominance and maintains China's economic and military competitiveness. One of the mandates of the strategy, which could have implications for spending in other key areas from the environment to defence.

It is unclear what other chip policies Beijing is considering rolling back, or whether it will eventually decide to forgo the massive capital investments that have fueled manufacturing over the past few decades.

The Chinese government could still decide to divert resources from other areas to fund chipmakers.

To Xi's dismay, the tens of billions of dollars poured into the chip industry over the past decade have not yielded a breakthrough that would allow China to compete with the United States on a more equal footing.

In fact, two of China's most advanced semiconductor companies, SMIC and Cheung Kong, have been paralyzed by U.S. sanctions.

In the summer of 2022, senior Beijing officials ordered a series of anti-corruption investigations into the top leadership of the chip industry, blaming corruption for wasteful and inefficient investments.

People familiar with the matter said that China National Integrated Circuit Industry Investment Fund (big fund) may lose its status as a result.

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