Editor’s note: Elements of this article are condensed from Chris Miller’s recent book, Chip War: The Fight for the World’s Most Critical Technology.
For Zhao Weiguo, it was a long, winding road from a childhood raising pigs and sheep along China’s western frontier to being celebrated as a chip billionaire by Chinese media. Zhao ended up in rural
China
after his father was banished for writing subversive poems during the Cultural Revolution, but he never planned to accept a life rearing livestock in the countryside. After winning entrance to Tsinghua University, one of China’s best universities, he turned himself into a government-backed tech tycoon. The investment firm that until recently he ran, called Tsinghua Unigroup, looked like a private company. In fact, it acted like a vehicle for the Chinese government’s industrial policy — and set its aim on acquiring the world’s most advanced semiconductor companies.
As Beijing pours billions of dollars into building a world-class semiconductor industry to rival America’s, government subsidies aren’t Chinese President
Xi Jinping’s
only strategy. China has also sought to buy some of the world’s leading chip firms, including companies from Taiwan, Europe, and the United States. It’s often done so via companies that look private but aren’t.
Tsinghua Unigroup, for example, was never a “normal” company. The son of former Chinese president Hu Jintao, said to be a “personal friend” of Zhao’s, served as Communist Party secretary for the holding company that owned Unigroup. The president of Tsinghua University throughout the 2000s, meanwhile, was a college roommate of Xi Jinping. In 2013, under Zhao’s leadership, Tsinghua Unigroup began spending vast sums on buying chip firms, in China and abroad. “All our deals are market-oriented,” Zhao insisted, but the sums Zhao spent building his chip empire were shocking, made without any consideration of market factors or profitability. When the company offered to fund controversial memory chip maker YMTC, its CEO initially asked for $15 billion from Tsinghua Unigroup but was told to take $24 billion instead. Even the goatherders Zhao grew up alongside in Western China would have recognized he was handing out multibillion-dollar checks with reckless abandon.
Zhao’s international deal-making started in 2014, when he cut a deal with Intel, America’s biggest chipmaker, to cooperate on smartphone processors. Intel hoped the tie-up would boost its sales in China. Zhao had different goals, declaring that working with Intel would “accelerate the technology development and further strengthen the competitiveness and market position of Chinese semiconductor companies.”
Yet small joint ventures like this weren’t enough to satisfy his ambitions. He wanted to control the commanding heights of the world’s chip industry. In 2015, Zhao visited Taiwan himself and pressed the island to lift its restrictions on Chinese investment in the semiconductor industry. His goal was to buy the island’s crown jewels — MediaTek, the leading chip designer outside the U.S., and Taiwan Semiconductor Manufacturing Company, the world’s biggest chip manufacturer, one that almost all the world’s tech companies rely upon. He floated the idea of buying a 25% stake in TSMC and advocated merging MediaTek with Tsinghua Unigroup’s chip design businesses and publicly suggested China should ban imports of Taiwanese chips if Taipei didn’t change its investment restrictions to legalize these transactions.
This pressure campaign put TSMC and MediaTek in a bind. Both companies were crucially reliant on the Chinese market. Most of the chips TSMC produced were assembled into electronics goods in workshops across China. Facing Chinese pressure, John Deng, the island’s economy minister, suggested relaxing Taiwan’s restrictions on Chinese investment in the chip sector. He seemed to see greater Chinese control of Taiwan’s chip sector as inevitable. “You cannot escape from this issue,” Deng told journalists at the time. Yet the idea of selling Taiwan’s technological crown jewels to a state-backed investor on the mainland made little sense. The island would end up dependent on Beijing, so amid a contentious presidential election in Taiwan, the government delayed any policy changes.
Soon, Zhao set his sights on America’s semiconductor industry instead. In July 2015, Tsinghua Unigroup floated the idea of buying Micron, the American memory chip producer, for $23 billion, which would have been the largest-ever Chinese purchase of a U.S. company in any industry. Unlike in the case of Taiwan’s tech titans and its economic technocrats, Tsinghua’s efforts to purchase Micron were firmly rebuffed. Micron said it didn’t think the transaction was realistic, given the U.S. government’s security concerns.
Then, in the spring of 2016, Tsinghua quietly bought 6% of the shares in Lattice Semiconductor, another U.S. chip firm. “This is purely a financial investment,” Zhao told the Wall Street Journal. “We don’t have any intention at all to try to acquire Lattice.” Scarcely weeks after the investment was publicized, Tsinghua Unigroup began to sell its shares in Lattice. Shortly thereafter, Lattice received a buyout offer from a California-based investment firm called Canyon Bridge, which journalists from Reuters revealed had been discreetly funded by the Chinese government. The U.S. government firmly rejected the deal.
The same investment fund simultaneously bought Imagination, a U.K.-based chip designer in financial distress. The transaction was carefully structured to exclude Imagination’s U.S. assets so that Washington didn’t block it, too. British regulators waved the deal through, only to find themselves regretting the decision when, three years later, the new owners tried to restructure the board of directors with officials appointed by a Chinese government investment fund.
For his part, Zhao insisted he was a simple entrepreneur. “Mergers between big U.S. and Chinese companies are bound to happen,” he declared. “They should be viewed from a business perspective instead of being treated under nationalist or political contexts.” But Tsinghua Unigroup’s activities were impossible to comprehend from the perspective of business logic. Chinese state-owned and state-financed “private equity” firms were circling the world’s semiconductor companies as part of a government-led effort to seize foreign chip firms. Amid this frenzied deal-making, Tsinghua Unigroup announced in 2017 that it had received new “investment”: around $15 billion from the China Development Bank and $7 billion from the Integrated Circuit Industry Investment Fund — both owned and controlled by the Chinese state.
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Chris Miller is the author of Chip War: The Fight for the World’s Most Critical Technology, the Jeane Kirkpatrick visiting fellow at the American Enterprise Institute, and an associate professor at the Fletcher School.
