Government subsidies received by leading players in China's semiconductor industry - including foundries, chip design and packaging firms - jumped significantly last year, as Beijing doubled down on efforts to boost technological self-sufficiency amid growing tensions with Washington.

The South China Morning Post examined financial statements from 25 of the country's best known semiconductor companies, including its top two contract chip makers - Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Semiconductor. They showed that state backing for those companies amounted to 20.53 billion yuan (US$2.82 billion) last year, a 35 per cent increase from 2022.

Those subsidies made up only a portion of the total government support granted to the Chinese chip sector, which includes privately-held companies that do not disclose financial figures. Neither do they encompass other forms of state support, such as direct investments and low-interest loans.

Still, the numbers underscore the urgency of Beijing's drive to boost the nation's semiconductor industry, as the US tightened its export controls to restrict China's access to advanced processors and chip-making technologies.

Among the 25 firms analysed by the Post, Huawei Technologies, which is privately held but voluntarily discloses key financial data, received the most government subsidies. The US-sanctioned company obtained 7.3 billion yuan in government subsidies in 2023, compared with 6.5 billion yuan in 2022 and 2.6 billion yuan in 2021.

After the US government banned California-based chip designer Nvidia from shipping its most sophisticated processors to China last year, Huawei has been racing to fill the void. The Chinese company's Ascend 910B chips, which a Huawei executive said were on par with Nvidia's popular A100 chips, have become a top alternative choice in various industries across the country.

In recent weeks, Huawei has been allowing potential clients to try out its Ascend 910C chips, successor to the 910B that is benchmarked against Nvidia's H100, The Wall Street Journal reported on Tuesday, citing unnamed sources.

Chinese electric vehicle maker BYD, which owns a car-chip foundry, came in second on the list, having secured 4.6 billion yuan in government subsidies in 2023, up 176 per cent year on year.

SMIC, which ranked third, was awarded about 2.6 billion yuan in government subsidies last year, up by 32 per cent year on year, while its rival Hua Hong, in sixth place, received 778.9 milllion yuan in government subsidies in 2023, around 9 per cent more than the previous year.

In fourth place was Sanan Optoelectronics, a major manufacturer of epitaxial wafers and chips, which collected 1.7 billion yuan in government subsidies last year, an increase of 60 per cent year on year.

Naura Technology Group, a semiconductor-production equipment maker that counts China's largest foundries as clients, obtained 931.7 million yuan in government subsidies last year, up 49 per cent from 2022.

Companies lower down the list reported significant growth in government backing. Subsidies given to Kingsemi, which produces lithography coating and development systems, more than doubled last year, while those for Piotech, which specialises in plasma-enhanced chemical vapour deposition tools, rose 93 per cent.

While the Chinese semiconductor industry has made steady progress in less advanced technologies, bottlenecks persist in some areas, such as lithography systems, inspection and metrology tools.

To counter mounting pressure from US tech sanctions, China in May set up its largest-ever chip investment fund. The third phase of the China Integrated Circuit Industry Investment Fund, also known as the "Big Fund", is expected to bolster Beijing's support for the nation's leading contract semiconductor manufacturers and other enterprises in the value chain, including equipment and material suppliers.

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China's AMEC sues U.S. defence department over 'military company' label

One of China's leading chip equipment makers, Advanced Micro-Fabrication Equipment (AMEC), said on Friday it had filed a federal lawsuit against the U.S. defence department, challenging its designation as a "Chinese Military Company".

AMEC has played a key role in China's push to develop the domestic semiconductor industry and cut reliance on foreign technology, with major chip foundries, such as Semiconductor Manufacturing International Corp, among its clients.

In a statement, AMEC called the designation "erroneous, factually incorrect, without legal basis, and in violation of due process."

It was one of a group of companies added to the list of Chinese Military Companies by the Department of Defense (DoD) in January.

"We are deeply shocked by the designation of AMEC again on the military-related list by the DoD," Chairman and CEO Gerald Yin said in the statement. "Such designation was wrong and groundless."

The department did not immediately respond to a request for comment.

The company had no success in efforts to get the defense department to remove it from the list, it said.

The lawsuit, filed in U.S. District Court in Washington, D.C., seeks a court order removing AMEC from the list. The company said it has never been involved in military activities and strictly complies with all laws and regulations.

While the designation does not directly affect AMEC's business operations, it could affect its reputation and serves as a stark warning to U.S. entities about the risks of doing business with the company, analysts have said.

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Texas Instruments awarded $1.6B to build semiconductor plants

Texas Instruments is set to receive up to $1.6 billion in funding from the CHIPS and Science Act to support the construction of three semiconductor plants in Texas and Utah, the company announced Friday.

The funding will go toward building two new fabrication plants in Sherman, Texas, and a third in Lehi, Utah.

“The historic CHIPS Act is enabling more semiconductor manufacturing capacity in the U.S., making the semiconductor ecosystem stronger and more resilient,” said Haviv Ilan, president and CEO of Texas Instruments, in a statement.

The company also expects to receive between $6 billion and $8 billion in Treasury Department tax credits for qualified U.S. manufacturing investments and $10 million in funding for workforce development, it said.

The three new plants are expected to create more than 2,000 manufacturing jobs, in addition to thousands of construction jobs, according to a Department of Commerce press release.

“During the pandemic, shortages of current-generation and mature-node chips fueled inflation and made our country less safe,” Commerce Secretary Gina Raimondo said in a statement.

“With this proposed investment from the Biden-Harris Administration in TI, a global leader of production for current-generation and mature-node chips, we would help secure the supply chain for these foundational semiconductors that are used in every sector of the U.S. economy, and create thousands of jobs in Texas and Utah,” she added.

The Biden administration has allocated more than $31 billion in CHIPS funding so far to companies, such as Intel, Taiwan Semiconductor Manufacturing Company and Samsung, to build out their semiconductor manufacturing in the U.S.

The CHIPS and Science Act, which was passed in August 2022, provided nearly $53 billion to boost domestic chip production, with $39 billion set aside for manufacturing incentives.

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