IN 2015, an obscure company run by a real estate mogul woke the world to China's ambitions in semiconductors, the foundational technology that powers computing. Laden with state funding and political backing, the company made jaws drop with a US$23 billion bid to buy the American chipmaker Micron. Six years on, China's would-be microchip champion looks more like a national disappointment. The company, Tsinghua Unigroup, said this month that one of its creditors had initiated bankruptcy proceedings, raising the prospect that it could be broken up.
Tsinghua Unigroup's flagging financial fortunes are an uncomfortable failure for Chinese officials, who sought to use state-guided funds and plans to pull even with the US in an ever more pugnacious competition over the future of technology. Once an exemplar of the powers of state-directed capitalism, Unigroup is emerging as a cautionary tale about the waste that can come with misplaced investment and subsidies.
Yet to Chinese economic planners, it may not matter. Over the last two years, market incentives such as the subsidies that bloated Unigroup's books have fed a boom in all things microchip. An analysis by state-run media showed that China created 58,000 semiconductor firms between January and October 2020 - roughly 200 a day. While many of these companies will fail, the belief in Beijing is that a few may create breakthroughs. In other words, it is the technology - not the finances - that counts.
"It would be a failure if the technology turned out not to be usable," said Dan Wang, a technology analyst with research firm Gavekal Dragonomics. "Tsinghua Unigroup has trained a new generation of semiconductor engineers and built a credible position in making memory chips."
A better way to think about China's chip ambitions is in terms of its space programme, he added. Profit, at least in the short term, is not the point. Instead, the goal is to achieve self-sufficiency in manufacturing the tiny chips that make everything from automobiles to missiles and supercomputers work.
The stakes are high. As the relationship between the US and China has frayed, American microchip bans have dealt serious blows to Chinese companies such as telecommunications infrastructure giant Huawei.
Few companies cut to the core of the Cold War-like technology competition between China and the US the way Tsinghua Unigroup does. The 2015 bid for Micron set off alarm bells in Washington, where it was seen as a flagrant example of Chinese companies using state financing to buy sensitive technologies wholesale. Backed by a state-run, multibillion-dollar semiconductor fund, Unigroup seemed to be a play by China to buy its way into leadership in the critical microchip industry. Its bid for Micron, which failed, started a string of actions by US regulators to temper China's ability to buy sensitive technology companies outright. It was an early stage of a frosty tech competition that eventually led to US blacklisting of Chinese companies over human rights and national security concerns.
More a semiconductor holding company than a known innovator, Unigroup grew rapidly over the last six years as its real-estate mogul leader, Zhao Weiguo, spent billions to take over some of the country's most promising microchip firms, leading ultimately to one of China's largest smartphone chip design companies.
He also reached high-profile agreements with some of the best-known brands in the US. In one deal, Unigroup secured a US$1.4 billion investment from Intel to develop smartphone chips. In another, Unigroup took over the controlling stake in HP's Chinese-based server and storage business, H3C Technologies. It also took a stake in Western Digital, signed a strategic partnership with Dell and joined an IBM chip-licensing plan. To fund it all, Mr Zhao pulled on the company's strong political pedigree, raising money from state funds allotted to help China catch up with foreign chip production abilities.
Tsinghua Unigroup is a subsidiary of a company controlled by China's prestigious Tsinghua University, the alma mater of President Xi Jinping.
"Tsinghua Unigroup is more of a political success story than a technological success story," Mr Wang said, adding that the geopolitical tensions that Unigroup helped trigger have ended up helping some of its businesses. NYTIMES