It remains unclear whether the failure of Unigroup directly triggered the anti-corruption earthquake within Big Fund. However, the strategy that the latter has taken—throwing massive investments against the wall and seeing what sticks—can fail miserably. According to long time observers, that strategy is also the perfect breeding ground for corruption.
“This is the least surprising corruption investigation I’ve heard of for a while,” says Matt Sheehan, a fellow at the US think tank the Carnegie Endowment for International Peace. “Not because I know Ding Wenwu is personally corrupt, but when you have that amount of money sloshing around in an industry, it’d be way more surprising if there isn’t a major corruption scandal.”
A significant part of the problem was a lack of precision, says Sheehan. China knew it needed to invest in semiconductors but did not know what exact sub-industry or company to prioritize. The country has been forced to learn by trial and error, feeling its way through issues like the bankruptcy of Unigroup and the expanding technology blockade by the US. The next step should be more targeted investments into specific companies, Sheehan says.
That might mean a new boss for the Big Fund—someone who’s better versed in getting financial returns, says Paul Triolo, a senior VP at the business strategy firm Albright Stonebridge, which advises companies operating in China. Many of the Big Fund’s managers came from government backgrounds and may simply have lacked the relevant experience. Ding, who is under investigation now, used to be a department director at China’s Ministry of Industry and Information Technology.
“You need competent people to run this [Big Fund] that understand the industry, finance, and are not going to fund projects that don’t have a sound commercial basis,” Triolo says.
Ultimately, these investigations may end up being positive for China’s semiconductor industry because they highlight the limitation of politically driven funding and may push the Big Fund to be managed on a more market-based basis. Beijing’s appetite for experiments is waning as its worries about self-sufficiency intensify. “They can’t afford to squander $5 billion on fabs that aren’t going to be viable,” says Triolo.