It remains unclear whether Unigroup’s failure directly triggered the anti-corruption earthquake at Big Fund. However, the strategy taken by the latter — to throw massive investments against the wall and see what sticks — may fail miserably. According to longtime observers, this strategy is also the perfect breeding ground for corruption.
“This is the least surprising corruption investigation I’ve heard about in a long time,” says Matt Sheehan, a fellow at the US think tank Carnegie Endowment for International Peace. “Not that I know Ding Wenwu is personally corrupt, but when you have this amount of money in an industry, it would be much more surprising if there it is not a big corruption scandal”.
A big part of the problem was the lack of precision, Sheehan says. China knew it had to invest in semiconductors, but it didn’t know which sub-industry or exact company to prioritize. The country has been forced to learn by trial and error, going through issues such as Unigroup’s bankruptcy and the expansion of the US technology blockade. The next step should be more targeted investments in specific companies, Sheehan says.
That could mean a new boss for the Big Fund, someone more versed in generating financial returns, says Paul Triolo, senior vice president at business strategy firm Albright Stonebridge, which advises companies operating in China. Many of the Great Fund’s managers came from government backgrounds and perhaps simply did not have the relevant experience. Ding, who is now under investigation, used to be a department director at China’s Ministry of Industry and Information Technology.
“You need competent people to do it [Big Fund] who understand the industry, they fund and won’t fund projects that don’t have a strong commercial foundation,” says Triolo.
Ultimately, these investigations may end up being positive for China’s semiconductor industry because they highlight the limitation of politically driven financing and may push for a more market-based management of the Grand Fund. Beijing’s appetite for experimentation is waning as its concerns about self-sufficiency intensify. “They can’t afford to waste $5 billion on fabs that won’t be viable,” says Triolo.
