China’s ambitious drive for semiconductor self-sufficiency, marked by substantial government investment and aggressive growth targets, is faltering amid a surge of unfinished projects and bankruptcies.

Despite its aspirations, China continues to lag behind the United States in semiconductor technology, compounded by U.S. sanctions and internal industry struggles.

Recent insolvencies, such as the high-profile bankruptcy of Shanghai Wusheng Semiconductor, underscore the sector’s instability. Shanghai Wusheng, a producer of OLED display drivers, microcontrollers, and CMOS image sensors, declared bankruptcy due to financial difficulties despite an initial $2.48 billion investment in 2021.

This collapse reflects a broader trend of financial instability affecting smaller companies within China’s semiconductor industry, as reported by the China Times. The market has seen 23 semiconductor companies withdraw their IPO applications since last year, indicating a growing wariness among investors.

The wave of unfinished projects and corporate closures started in 2020. Between 2021 and 2022, over 10,000 Chinese chip-related companies ceased operations. In 2023, a record 10,900 semiconductor-related companies deregistered, nearly doubling the previous year’s closures.

The unfinished projects include significant investments, such as a $3 billion integrated device manufacturing (IDM) project in Nanjing, initiated in 2020 but stalled by the end of the year. The project was restructured and rebranded as Xinyue Polar Core Semiconductor in 2021, which saw its registered capital significantly reduced, indicating persistent financial troubles.

China’s initial push to dominate the semiconductor industry began in 2014, supported by hefty government subsidies. This led to the registration of 50,000 semiconductor-related companies in 2020 alone. However, several high-profile projects, like the GlobalFoundries and Chengdu collaboration and the Wuhan Hongxin project, failed, highlighting systemic issues within the industry. The withdrawal of 23 IPO applications since early 2023 further reflects investor caution.

Looking forward, tightening IPO policies in 2024 are expected to impose stricter standards, making it harder for underqualified semiconductor firms to raise capital. Experts predict this will result in more companies exiting the market due to financial challenges and difficulties in securing investment.

Acknowledging the grim outlook, Zhang Ping’an, CEO of Huawei’s Cloud Services, expressed rare public concern about China’s semiconductor capabilities at the Mobile Computility Network Conference. Zhang highlighted the severe impact of U.S. sanctions, particularly on China’s ability to acquire advanced 3.5nm chips, which are critical for cutting-edge technologies.

“Under U.S. sanctions, China has no way to secure these products,” he noted, bringing attention to Taiwan’s TSMC, which continues to supply these advanced semiconductors unaffected by the sanctions.

Despite a $47.5 billion fund announced by the Chinese government in May to boost its semiconductor industry, challenges remain. Huawei’s success in mass-producing 7nm chips without extreme ultraviolet (EUV) technology was seen as a breakthrough. However, Zhang noted the significant hurdles in advancing to 3.5nm technology, which requires EUV equipment restricted by U.S. export controls.

To cope with these restrictions, Chinese manufacturers are exploring workarounds and gray market solutions. For instance, DRAM maker CXMT is preparing to mass-produce 18.5nm DRAM, circumventing the sub-18nm equipment restricted by U.S. sanctions. This adaptation illustrates China’s strategy to maximize the potential of available technologies while navigating around export controls.

The market implications are substantial. Research firm TrendForce predicts that if China remains unable to produce more advanced semiconductors, it will likely focus on increasing its share in the legacy semiconductor market, with an expected rise from 29% in 2023 to 33% by 2027. This shift may also affect Chinese electric vehicle (EV) makers, who face challenges expanding into international markets due to similar restrictions and high tariffs imposed by the U.S.

Zhang’s concerns resonate with comments from former Google CEO Eric Schmidt, who highlighted the U.S.’s significant lead over China in the AI race.

“In the case of artificial intelligence, we are well ahead, two or three years probably of China, which in my world is an eternity,” Schmidt stated. He attributed this advantage to chip shortages in China and the lack of access to advanced AI chips due to U.S. sanctions.

The outlook for China’s semiconductor industry, once a symbol of its technological ambition, is now clouded by substantial obstacles. The sustained U.S. pressure has forced a reassessment of China’s capabilities, shifting focus towards optimizing existing technologies and exploring alternative solutions.

Guaranty Trust Bank (GTBank) has dragged top executives from 13 commercial banks into court. This legal battle, involving a staggering N17 billion loan under the Central Bank of Nigeria’s (CBN) Anchor Borrowers Programme, has brought to the forefront the intricate details stymieing agricultural development in Nigeria.

The Anchor Borrowers Programme, launched by the CBN in late 2015, was designed with noble intentions. It aimed to boost agricultural production by providing farm inputs and cash to smallholder farmers, thereby stabilizing inputs supply to agro-processors and addressing the country’s negative balance of payments on food. By 2022, the programme had reportedly benefitted at least 4.8 million people, with significant investments funneled into boosting rice production and other critical agricultural activities.

However, the programme has been marred by challenges. Loan defaults have been a significant issue, with a 2023 statement from the CBN’s corporate communications department revealing that only 48% of the loan had been repaid. The CBN disclosed that it had released N1.079 trillion under the programme, out of which over N500 billion was due for repayment.

The GTBank Legal Battle

In the current case, GTBank is entangled in a dispute with AFEX Commodity Exchange Limited over a N17 billion loan issued under the Anchor Borrowers Programme. The bank has accused AFEX of failing to repay the loan, despite extensions and multiple attempts at negotiation. According to GTBank, the outstanding loan comprises N15.77 billion in principal and N2.04 billion in recovery costs.

The situation escalated when Justice CJ Aneke of the Federal High Court, Lagos, directed 20 banks to transfer any funds in AFEX’s accounts to GTBank until the full amount was repaid. Additionally, the court granted GTBank the right to take over and sell commodities stored in AFEX’s 16 warehouses across seven states. The order, dated May 27, 2024, was aimed at securing the repayment of the loan.

However, GTBank claims that the executives of these banks, including chairmen, CEOs, directors, and company secretaries, have failed to comply with the court’s No-Debit-Order on AFEX’s accounts. This alleged non-compliance has led to contempt proceedings against 60 top executives, including those from major banks like Access Bank, Citibank, and Zenith Bank.

AFEX’s Defense Citing Economic Headwinds

AFEX, on the other hand, has defended its position by stating that it has repaid approximately 90% of the loan. The company attributed the difficulties in repaying the remaining amount to significant macroeconomic and policy challenges that affected the farmers who received the loans.

“Over 800,000 hectares of farmland were financed through the course of the programme’s operationalisation,” AFEX explained in a statement. “However, significant macro and policy headwinds, including the cash crunch on the back of the Naira redesign policy, severely impacted the productive capacity and market participation of the smallholder farmers in the 2022/2023 season.”

This situation, according to AFEX, led to a drastic reduction in repayment rates from the farmers, dropping to less than 40% from previous rates of 90%. The lingering effects of the cash crunch have continued to impact the farmers, who were forced to sell their produce at below-market value to sustain their families, thereby hindering their ability to repay the loans.

Against this backdrop, AFEX has called on the CBN to activate the collateral guarantee clause included in the Anchor Borrowers Programme, which covers up to 70% of the loan. The exchange has engaged in discussions with both GTBank and the CBN, highlighting the limitations faced by the defaulting farmers and suggesting the activation of the risk-sharing structure put in place for the programme.

“Evidenced in the attached letters, our engagements with Guaranty Trust Bank Limited, a Participating Financial Institution in the program, as well as the apex bank have seen us highlight these limitations on the part of the defaulting farmers with suggestions being made to the CBN to activate the risk-sharing structure put in place for the program and release funds accordingly to sustain activities and allow for needed recovery efforts in our agriculture sector,” AFEX stated.

This legal tussle between GTBank and AFEX, with the involvement of multiple banks’ executives, is not just a matter of compliance by a court; it is a reflection of broader issues within Nigeria’s financial and agricultural sectors.

The Anchor Borrowers Programme was initially seen as a groundbreaking initiative to address food security and enhance agricultural productivity. However, the programme’s challenges, including loan defaults and economic mismanagement, have undermined these goals.