China’s National Integrated Circuit Industry Investment Fund — known as the “Big Fund” — launched its third phase in late 2025 with RMB 344 billion (US$47 billion) in committed capital. This is larger than Phase I (US$22 billion, 2014) and Phase II (US$29 billion, 2019) combined. The investment strategy has shifted significantly from earlier phases.
Historical Context: How Phase I and Phase II Paved the Way
To understand the strategic leap of Phase III, it is essential to examine the outcomes of the first two phases. Phase I (2014–2018) deployed approximately US$22 billion primarily into chip design and manufacturing, with anchor investments in SMIC (Semiconductor Manufacturing International Corporation), Hua Hong Semiconductor, and Yangtze Memory Technologies Corporation (YMTC). These investments helped establish China’s baseline capacity in logic and memory fabrication, with SMIC advancing from 28nm to 14nm production nodes during this period. Phase II (2019–2024) nearly doubled the committed capital to US$29 billion and shifted focus upstream to semiconductor equipment and materials. Key beneficiaries included AMEC (etch tools), ACM Research (wafer cleaning), and GTA Semiconductor. By the end of Phase II, China’s domestic equipment self-sufficiency rate had risen from approximately 7% in 2018 to an estimated 15–18% in 2024 — still critically low but showing measurable progress. Phase III, with its record US$47 billion, is designed to attack the remaining structural gaps that continue to constrain China’s semiconductor ambitions.
Why It Matters
Phase I focused on chip design and manufacturing — funding SMIC, Hua Hong Semiconductor, and Yangtze Memory Technologies. Phase II emphasized equipment and materials. Phase III targets three gaps in China’s semiconductor supply chain: advanced packaging (where China holds less than 15% of the global market), semiconductor materials (photoresists, high-purity chemicals, silicon wafers — where Japanese and US suppliers dominate), and EDA tools for advanced nodes.
Each of these three sectors represents a critical bottleneck. In advanced packaging, techniques like 3D stacking, hybrid bonding, and chiplet integration are essential for maintaining performance scaling as traditional Moore’s Law slows. Global advanced packaging market is projected to reach US$65 billion by 2028, with Taiwan’s ASE Group and the US-based Amkor controlling over 40% of the market. China’s domestic players such as JCET and Tongfu Microelectronics are rapidly expanding but still lag in the most advanced nodes. In semiconductor materials, Japan’s JSR and Shin-Etsu command over 55% of the global photoresist market, while US-based Entegris dominates high-purity chemical distribution. China’s domestic material self-sufficiency rate remains below 20% across most categories. In EDA, the three global leaders — Synopsys, Cadence, and Siemens EDA — hold roughly 75% of the worldwide market share. China’s EDA ecosystem, led by companies like Empyrean Technology and Primarius Technologies, is emerging but still largely confined to mature nodes and specific tool categories.
What You Need to Know
The fund’s leadership has stated a preference for investing in companies that can achieve commercial viability within 5 years, a departure from earlier phases’ longer time horizons. For foreign semiconductor equipment and materials suppliers, the Big Fund’s Phase III strategy creates both headwinds and tailwinds. The headwind: the fund will accelerate domestic alternatives to your products, potentially shrinking your addressable market in China over a 5-10 year horizon.
This shift to a 5-year commercial viability requirement reflects a maturation of China’s industrial policy thinking. During Phases I and II, the state was willing to sustain long development cycles in foundational technologies. Now, with a more developed domestic ecosystem in place, the focus is on companies that can reach revenue generation and profitability within a timeframe that aligns with the rapid pace of semiconductor technology cycles. For foreign suppliers, this means that Phase III investment targets are not speculative research projects but well-defined commercial ventures with clear roadmaps to market. The competitive pressure will therefore intensify more quickly than in earlier phases.
One Data Point
The tailwind: in the near term (2026-2028), China’s semiconductor manufacturing capacity is expanding aggressively — 18 new 12-inch wafer fabs are under construction as of mid-2026, representing US$120 billion in capital expenditure. These fabs need equipment, materials, and process know-how that domestic suppliers cannot yet fully provide. The window for foreign suppliers is narrowing, but it’s still open.
To put this capacity expansion in perspective, each 12-inch wafer fab typically requires US$3–8 billion in equipment capex, with an additional 20–30% allocated to materials and consumables over its first three years of operation. The 18 fabs under construction will collectively add approximately 1.2 million wafer starts per month (WSPM) of additional capacity by 2028, representing a roughly 30% increase in China’s total installed base. Major projects include the SMIC Beijing expansion, a new memory fab in Shenzhen backed by local government investment, and multiple power semiconductor fabs in the Yangtze River Delta region. For foreign equipment suppliers, this represents a procurement pipeline of approximately US$70–80 billion in equipment alone over the next 24–36 months. The key challenge is that China is simultaneously implementing export control regimes that favor domestic suppliers, including procurement quotas for state-owned enterprises and preferential financing for equipment sourced from domestic vendors.
Strategic Implications for Foreign Companies
The practical takeaway: if you supply semiconductor equipment, materials, or EDA tools, establish a China entity now — not for market share growth, but to maintain access as the procurement landscape shifts. The Chinese semiconductor market is expected to reach US$250 billion by 2028. Companies without a local entity, local application support, and a clear compliance framework will be deprioritized as domestic alternatives mature.
Actionable steps include: (1) registering a wholly foreign-owned enterprise (WFOE) or joint venture in a semiconductor-focused industrial park such as Wuxi, Shanghai Zhangjiang, or Beijing Yizhuang, which offer tax incentives and expedited approvals; (2) building local application engineering teams that can provide on-site process support, as Chinese fab managers increasingly prefer suppliers with immediate local response capability; (3) developing a dual-use product strategy that complies with both Chinese and Western export control regulations — for example, offering mature-node tools that are not subject to US or Dutch export restrictions while maintaining premium products for non-China markets; and (4) investing in Chinese-language technical documentation, compliance disclosure, and relationship management. Companies that treat the Chinese market as a transactional sales opportunity rather than a long-term operational commitment will be the first to lose access as domestic alternatives move from prototype to production.
Market Data and Macro Trends
According to data from the China Semiconductor Industry Association (CSIA), China integrated circuit imports totaled US$385 billion in 2025, while domestic IC production reached US$95 billion. The gap between consumption and domestic supply — approximately 75% — remains the fundamental driver of semiconductor policy and investment. This import-reliance ratio, while high, has actually improved from approximately 85% in 2018, indicating that prior phases of the Big Fund have begun to yield results. However, the dollar value of imports continues to grow due to surging overall demand. China’s IC consumption is projected to reach US$450 billion by 2030, driven by automotive electronics, AI accelerators, 5G/6G infrastructure, and IoT devices. To close the domestic supply gap to 50% by 2030, China would need to invest an additional US$200 billion in fabrication capacity and upstream supply chain development, suggesting that Phase III is unlikely to be the final tranche. Industry observers anticipate a Phase IV fund announcement as early as 2029, potentially exceeding US$60 billion.
Sector Deep Dive: Advanced Packaging
Advanced packaging represents perhaps the most immediate opportunity for Phase III investment. As chip design reaches the limits of monolithic scaling at 3nm and below, heterogeneous integration through advanced packaging has become the primary pathway for performance improvement. China’s leading packaging houses — JCET and Tongfu — combined hold only about 12% of the global advanced packaging market, according to 2025 data from Yole Group. JCET’s acquisition of STATS ChipPAC and subsequent integration has improved its capabilities in fan-out wafer-level packaging (FOWLP) and system-in-package (SiP), but it still lacks production-ready high-volume hybrid bonding capability — a requirement for 3D stacked memory and logic-on-logic integration. Phase III funds are expected to flow heavily to companies developing hybrid bonding tools, wafer-level underfill materials, and non-destructive inspection systems for fine-pitch interconnects (sub-2μm pitches). For foreign suppliers like Applied Materials, Tokyo Electron, and Disco, the advanced packaging segment represents a less politically sensitive entry point compared to front-end lithography, as packaging tools generally face fewer export restrictions.
Looking Ahead: The Next 24 Months
In the immediate term (2026–2027), the most visible effects of Phase III will be heightened merger and acquisition activity in China’s semiconductor supply chain. The fund has a mandate to consolidate fragmented sectors — particularly in materials and EDA, where dozens of small players lack the scale to compete globally. Foreign acquirers should be aware that Phase III-backed domestic consolidation could make Chinese competitors larger and more capable faster than organic growth alone would allow. Concurrently, foreign suppliers should prepare for increased compliance scrutiny. China’s Ministry of Commerce has signaled stricter end-use monitoring for equipment imports, and Phase III portfolio companies may face added pressure to source domestically for a portion of their procurement. On the opportunity side, companies that offer unique enabling technologies — such as advanced metrology, high-purity gas delivery systems, or specialized substrate materials for GaN and SiC — will find receptive customers among China’s rapidly expanding fab base, provided they have local entities and support infrastructure in place. The next 24 months will determine which foreign suppliers sustain access to the world’s largest semiconductor consumption market.
— China Gateway 360 —
Remote China market entry support, built around execution.
