China plans $43b fund for tech sector

Fund to help struggling firms signals bold ambitions to expand industry's capabilities

HONG KONG • A Chinese technology regulator has said it would cooperate with a bank to set up a US$30 billion (S$43 billion) fund to support the country's huge electronics supply chain.

The creation of the new fund underscores China's ambitions to expand its tech capabilities and also signals how those ambitions are being threatened by slowing growth and recent market turmoil. Official accounts of the fund did not make clear precisely how the money would be spent. But given the recent weakness in Chinese manufacturing and lower-end electronics manufacturers, it may be intended as a form of stimulus to the tech industry.

Reports about the new fund said it would be used to build a "strong manufacturing country" and an "Internet power".

A report in state-run media said the fund was created to address problems faced by small and medium-sized enterprises that have come under pressure or folded recently because of a lack of funding. The report made reference to recent factory closures, specifically pointing out the closing in October of Fu Chang Electronic Technology, a supplier to telecom equipment makers Huawei and ZTE.

The fund will be created through a partnership between an industry group controlled by China's Ministry of Industry and Information Technology and Ping An Bank.

Zhou Zixue, who leads the industry group overseeing the new fund, said the financing would be used to develop advanced technologies and support companies that are facing financing difficulties, an indication that it might not ultimately lead to a reduction in China's huge number of low-cost electronics manufacturers.

Signalling the importance of the initiative, the signing ceremony was held at Diaoyutai State Guesthouse, which is often used to host visiting dignitaries, and was attended by representatives of many of China's largest technology companies.

Local shares were hit hard last week by concerns about a depreciating currency and slowing growth. That volatility is most likely worsening an already difficult situation for lower-end electronics makers and component suppliers in China. While China's largest hardware brands and booming Internet companies tend to attract media attention, the country also has huge numbers of companies that support the electronics supply chain. With low margins and inconsistent orders, many are highly exposed to slowdowns in the worldwide demand for electronics.

The headwinds were highlighted again on Friday, when Taiwanese electronics manufacturing giant Foxconn said last month's revenue was 20 per cent lower than it was in December 2014. The company operates a number of city-size production facilities in China.

In another indication of the pressures on manufacturing in recent months, the China Labour Bulletin said in a recent report that there had been a "massive upsurge" in worker strikes and protests during the second half of last year. Tracing the uptick in disputes to market turmoil last summer, the organisation said it had tracked twice as many incidents last year as it had in 2014.

The new fund seems to resemble a separate multibillion-dollar fund, announced in 2014, to provide financing and enable acquisitions to increase the size and sophistication of the country's semiconductor industry.

In a speech, Mr Zhou Zixue, who leads the industry group overseeing the new fund, emphasised the importance of market forces, using language similar to that used in announcing the semiconductor fund. Mr Zhou, who is the chairman of the Semiconductor Manufacturing International Corporation, also said that the new fund would support "supply side" policies.

That phrase, recently popular though less than precise, is usually used by Chinese economic policy makers to emphasise reducing excess manufacturing capacity and moving towards a more consumption-driven economy. Still, Mr Zhou said the financing would be used to develop advanced technologies and support companies that are facing financing difficulties, an indication that it might not ultimately lead to a reduction in China's huge number of low-cost electronics manufacturers.

Over the last year, the semiconductor fund has been used to finance a number of strategic investments and acquisitions in foreign chip companies. It is unclear whether the new fund will be used to support acquisitions.

NEW YORK TIMES

A version of this article appeared in the print edition of The Sunday Times on January 10, 2016, with the headline 'China plans $43b fund for tech sector'. Print Edition | Subscribe