It remains unclear whether Unigroup’s failure was the direct cause of the anti-corruption earthquake within Big Fund. The strategy that the latter has followed – throwing huge investments against the wall and seeing what sticks – can 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 in ages,” said Matt Sheehan, a fellow at the US think tank Carnegie Endowment for International Peace. “Not because I know Ding Wenwu is personally corrupt, but when you have that much money lying around in an industry, it would be much more surprising if there wasn’t a major corruption scandal.”
A big part of the problem was a lack of precision, Sheehan says. China knew it needed to invest in semiconductors, but wasn’t sure which sub-industry or company to prioritize. The country has been forced to learn by trial and error and work its way through issues such as Unigroup’s bankruptcy and the US’s expanding 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 better-versed in achieving financial returns, says Paul Triolo, a senior VP at business strategy firm Albright Stonebridge, which advises companies operating in China. Many Big Fund managers had a government background and simply did not have the relevant experience. Ding, who is now under investigation, was a department director of China’s Ministry of Industry and Information Technology.
“You need competent people to run this [Big Fund] who understand the industry, fund it and don’t fund projects that don’t have a solid commercial base,” says Triolo.
Ultimately, these studies could benefit the Chinese semiconductor industry, as they reveal the limitations of politically-driven funding and could lead to the Big Fund being managed on a more market-based basis. Beijing’s appetite for experimentation is waning as self-sufficiency concerns mount. “They can’t afford to waste $5 billion on fabs that won’t be viable,” says Triolo.