According to an analysis by state-run media, China created 58,000 semiconductor firms between January and October 2020 - roughly 200 a day.

Few companies cut to the core of the Cold War-like technology competition between China and the United States the way Tsinghua Unigroup does.

In 2015, an obscure company run by real-estate mogul woke the world to China's ambitions in semiconductors, the foundational technology that powers foundational technology that powers computing. Laden with state funding and political backing, the company made jaws drop with a $23 billion bid to buy the American chip maker Micron

Six years later, China's would - be microchip champion looks more like a national disappointment. The company, Tsinghua Unigroup, said this month that one of the creditors had initiated bankruptcy proceedings against it, raising the prospects that the company could be broken up.

Tsinghua Unigroup's flagging financial fortunes are an uncomfortable failure for Chinese officials, who sought to use state-guided funds and plans to pull even with the United States in an ever more pugnacious competition over the future of technology.

Once an exemplar of the powers of state-directed capitalism, Tsinghua Unigroup is emerging as a cautionary tale about the waste that can come with misplaced investment and subsidies.

Yet to Chinese economic planners, it may not matter. Over the past two years, market incentives like the subsidies that bloated Unigroup's books have fed a boom in all things microchip. 

According to an analysis by state-run-media, China created 58,000 semiconductor firms between January and October 2020 - roughly 200 a day. 

While many of these companies will fail, the belief in Beijing is that a few may create breakthroughs. In other words, it's the technology - not the finances - that counts.

''It would be a failure if the technology turned out not to be usable,'' said Dan Wang, a technology analyst with Gavekal Dargonomics, a research firm.

''Tsinghua Unigroup has trained a new generation of semiconductor engineers and built a credible position in making memory chips.''

A better way to think about China's chip ambitions is in terms of its space program, he added. Profit, at least in the short term, is not the point. Instead, the goal is to achieve self-sufficiency in manufacturing the tiny chips that make everything from automobiles to missiles and supercomputers work.

The stakes are high as the relationship between China and the United States has frayed, American microchip bans have dealt serious blows to Chinese companies like Huawei, the telecom infrastructure giant.

The 2015 bid for Micron set off alarm bells in Washington, where the move was seen as a flagrant example of Chinese companies' using state state financing to buy sensitive technologies wholesale. Backed by a state-run, multi billion-dollar semiconductor fund, Tsinghua Unigroup seemed to play by China to buy its way into leadership in the critical microchip industry.

Tsinghua Unigroup's bid for Micron, which failed, started a string of actions by the U.S. regulators to temper China's ability to buy sensitive technology companies outright. It was an early stage of a frostier tech competition between the United States and China that eventually led to American blacklisting of Chinese companies over human rights and national security concerns.

The Publishing continues to Part 2. The World Students Society thanks author Paul Mozur.


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