China's anti-corruption watchdog has launched a probe against key executives of at least two state-owned semiconductor industry investment funds.

While the sweeping probe announced earlier this month has sent shock waves across the country's semiconductor industry, the Chinese authorities may want to ensure that a Hanxin-type scandal is not repeated.

(In 2005, chip designer Chen Jin, who was then a professor at the prestigious Shanghai Jiaotong University, announced that his team had created one of China's first home-developed digital signal processor (DSP) chips, which it named Hanxin ("Chinese chip"). Chen was honoured as one of China's outstanding young scientists. The Chinese government granted him a huge research fund, and he was appointed dean of Shanghai Jiaotong University's Institute of Microelectronics. However, it was later found to be a fraudulent claim. The scandal was a massive setback to Chinese semiconductor ambitions.)

China Integrated Circuit Industry Investment Fund (CICIIF) And 'Big Fund'

Du Yang, a former director at Sino IC Capital, the sole management entity of the China Integrated Circuit Industry Investment Fund (CICIIF), is the latest fund executive under investigation for suspected "serious violations of discipline and laws". Lu Jun, the fund's former chief executive, is also facing a probe by the country's anti-corruption watchdog.

CICIIF was set up in 2014 by the country's Ministry of Finance and China Development Bank Capital as part of a plan to "leapfrog" developments in the semiconductor industry. The state-owned fund has attempted to prop up the Chinese semiconductor industry with a focus on chip design, production, packaging and testing. The fund has reportedly raised $ 20 billion so far.

The fund is mandated to invest in Chinese companies operating in semiconductors and related industries to develop China's integrated circuit industry ecosystem and explore potential business opportunities in the sector.

Ding Wenwu, general manager of the National Integrated Circuit Industry Investment Fund (Big Fund), is also under investigation for an alleged breach of rules. National Integrated Circuit Industry Investment Fund has so far raised $51bn via two funding rounds.

The fund has been pivotal in advancing China's semiconductor manufacturing capability by backing major chip makers, including Shanghai-based foundry Semiconductor Manufacturing International Corp and Yangtze Memory Technologies Corp.

The corruption probe comes amid the bankruptcy of Big Fund-backed Tsinghua Unigroup.

Tsinghua Unigroup, once viewed as China's best bet for reducing dependence on imported chips and mounting a challenge against foreign chip manufacturers, has faced several setbacks recently, including one of its creditors has requested a court to begin bankruptcy proceedings against the company. Tsinghua Unigroup is saddled with more than $30 billion in debt and just $8 billion in cash and cash equivalents.

Over the years, the Chinese government has poured huge funds into Tsinghua Unigroup, along with other chip makers such as Semiconductor Manufacturing International Corp, in hopes of building national champions in chips.

Although China is the world's largest consumer of semiconductors, it has a disproportionately small international market share of production and a very low domestic chip self-sufﬁciency rate.

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