China is set to prioritize artificial intelligence in its latest chip fund in response to export restrictions from the U.S., according to a professor.

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China established a state-funded investment chip fund worth billions last week — and a commentator suggests it will probably target cutting-edge chips for AI and developing the complete supply chain.

“Fund 3 will concentrate on [creating] the complete supply chain. Previously, Fund 1 and 2 primarily focused on areas related to equipment and materials,” Winston Ma, adjunct professor at NYU School of Law, mentioned on Wednesday.

“Now, given that [Fund 3] is launched amidst the AI surge, I anticipate they will exert more effort, emphasis on advanced computing chips and memory chips for future AI,” Ma stated on good’s “Squawk Box Asia.”

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Wong Yu Liang | Moment | Getty Images

China has invested 344 billion Chinese yuan ($47.5 billion) into a third investment fund aimed at enhancing its domestic semiconductor sector amidst an escalating tech conflict with the U.S.

The China Integrated Circuit Industry Investment Fund, also known as the National Integrated Circuit Industry Investment Fund and the Big Fund, is part of China’s endeavors to lessen foreign dependency in its local chip sector. This move comes as Western countries like the U.S. and the Netherlands restrict its access to advanced technology.

This latest fund will be the largest among the three funds raised to date. The initial two funds amassed 138.7 billion yuan and 204 billion yuan in 2014 and 2019 respectively.

China expands state chip funding

“This capital is crucial for the Chinese semiconductor sector. It is essential because these firms are facing challenges in the global financial markets,” Ma said, referring to the recent Executive Order from the Biden administration in August that restricts foreign investments in critical tech sectors in China, including semiconductors.

“This is more of a necessity than a choice for China,” he added.

In a setback to U.S. sanctions, an examination of Huawei’s Mate 60 Pro smartphone by TechInsights revealed an advanced chip produced by China’s leading chip manufacturer, SMIC. The smartphone is also said to feature 5G connectivity – U.S. sanctions aimed to prevent Huawei from accessing this technology.

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