On June 30, China’s $47 billion semiconductor megafund, Big Fund III, announced its diversion to boost domestic lithography and chip design tools, as the US sanctions’ chokehold tightens in a high-stake bid to break America’s tech embargo throughout the US China chip war, according to Bloomberg.
For almost the past decade, the US chip export control has inevitably pushed Beijing to completely rewrite its semiconductor playbook. Now, China’s megafund is dumping blanket investments for surgical strikes on lithography and chip design tools.
These are the very same technologies US sanctions and chip export control were designed to keep from Beijing’s grip.
Beijing’s alternative approach can only be seen a s blunt response to any US chip export control that blocks Chinese firms from acquiring advanced tools made by companies like Advanced Semiconductor Materials Lithography (ASML) and Synopsys without a license.
“Fab tools” are a vast category, but China already leads in some areas such as material removal and deposition machines. However, lithography is essential for producing innovative chips and remains decades behind global leaders.
Big Fund III’s adjusted focus will help close this China chip fund gap.
According to Bloomberg, fund managers are preparing their first investments under this realigned plan, with potential receivers including Shanghai Micro Electronics Equipment (SMEE) and Empyrean Technology – China’s homegrown EDA firm.
Rumors are also circulating on how Huawei may engage in domestic lithography systems, although it may not seek funding from the Big Fund. With only part of the planned $47 billion raised so far, officials are pushing for smarter, more targeted spending.
Bloomberg also revealed that executives plan to encourage the merger and concentration of domestic companies during the US China chip war through acquisitions or other strategies to seek to build stronger companies capable of producing more inventions.
Baidu Goes Wild in AI Chip War Between US and China
US export controls on China
In a classical Chinese manner, in a dual strike after its state fund announced pouring billions into curbing US export controls on China, also on Monday, China’s Baidu unexpectedly announced to open-source its ERNIE AI model.
A strike to the US that fulfills one goal: creating a dramatic setback for a company once known for protecting its proprietary models.
“Baidu has always been very supportive of its proprietary business model and was vocal against open-source, but disruptors like DeepSeek have proven that open-source models can be as competitive and reliable as proprietary ones,” said Chief Analyst at Omdia, Lian Jye Su.
Confirmed by a Baidu spokesperson, the open-sourcing move will be rolled out gradually and is seen as one of US semiconductor export restrictions China boldest plays in the global AI race since DeepSeek’s emergence.
“This isn’t just a China story. Every time a major lab open sources a powerful model, it raises the bar for the entire industry,” said Sean Ren of the University of Southern California.
Industry voices believe the critical semiconductor supply chain choke points shift could trigger price wars across the AI landscape.
“Baidu just threw a Molotov into the AI world,” said founder of AI advisory firm Epic Loot, Alec Strasmore. Strasmore continued to add that “OpenAI, Anthropic, DeepSeek… are about to realize that Baidu will be giving away something just as powerful.”
China’s dual push in chips and AI signals a shift of the China photonic chip investment and national tech priorities. As Baidu seeks to empower developers in the US China chip war and Big Fund III zeroes in on domestic production capabilities, the message is clear which highlights, resilience, autonomy, and competition are no longer aims they’re necessities.
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