China state funds double down on Hua Hong in legacy chip push

The Chinese government is heavily investing in the country's second-largest contract chipmaker, Hua Hong Grace Semiconductor, to bolster its self-reliance in mature-node chips. The state funds are pouring billions of yuan into Hua Hong's parent company and a new manufacturing facility in Wuxi. This capital infusion underscores Beijing's push for domestic foundries as Washington imposes tighter technology restrictions on China.

Hua Hong Group's registered capital surged from 13.5 billion yuan to 19.7 billion yuan after a 6.2 billion yuan injection led by the state-backed Shanghai Guosheng Group. Following the transaction, Guosheng's stake in Hua Hong Group increased to 41.7%, while its indirect holding rose to 10.2%. The Shanghai State-owned Assets Supervision and Administration Commission also contributed 19.7 million yuan, maintaining its role as the ultimate actual controller of Hua Hong Group.

Beijing aims to dominate legacy and mature-node semiconductors, which are essential for electric vehicles, industrial automation, Internet of Things devices, and consumer electronics. Although Hua Hong faces export restrictions from the US, it has accelerated its investment in its Wuxi fab project in response. The company's registered capital at the joint venture managing the fab reached US$4.17 billion, a 4,000-fold increase, with major state investors, including the National Integrated Circuit Industry Investment Fund, also contributing capital.

Once fully operational, the Wuxi fab, known as Fab 9B, will add 55,000 wafers to Hua Hong's monthly production capacity, expanding its total Wuxi capacity by roughly 30%. Despite the US export controls, Hua Hong Chairman and President Bai Peng stated that the company did not see any impact on its Wuxi project. Hua Hong's Hong Kong-listed shares fell 1.1% on Friday, following a broader decline in Chinese semiconductor stocks.