China strengthens SMIC with the Big Fund as the third-largest shareholder

China has closed one of the most significant operations in its semiconductor industry. SMIC, the country’s largest chip foundry, has completed the purchase of the remaining 49% stake in SMIC Northern, its manufacturing subsidiary in Beijing. The deal, valued at 40.601 billion yuan (approximately $5.9 billion), was executed through the issuance of 547 million new shares and is considered the largest asset restructuring since the launch of the Shanghai STAR Market.

While the financial data is notable, the industrial message is even more important. After the transaction, SMIC Northern becomes a wholly owned subsidiary of SMIC, with the National Integrated Circuit Industry Investment Fund, known as Big Fund, becoming the third-largest shareholder. Beijing clearly signals that semiconductor self-sufficiency is not just a technological priority but a national policy.

This move comes at a time when China is still striving to reduce its reliance on tools, chips, and processes subject to US and allied restrictions. Today, SMIC cannot compete on equal footing with TSMC or Samsung in the most advanced nodes, but it plays a central role in maintaining local production of mature chips, industrial capabilities, consumer electronics, automotive manufacturing, networking equipment, and parts of the AI supply chain domestically.

What did SMIC buy?

SMIC already controlled 51% of SMIC Northern and consolidated its accounts, but it did not hold 100% of the economic benefits from the subsidiary. With this deal, it acquires the remaining 49% held by five shareholders, including the Big Fund, funds linked to Beijing, Yizhuang, Zhongguancun, and other state or semi-state vehicles.

SMIC Northern, also known as Semiconductor Manufacturing North China, was founded in 2013 and specializes in manufacturing services for 12-inch wafers. Its strategic importance within SMIC is significant because it provides fabrication capacity in Beijing, aligning with China’s need to bolster local production of mature and semi-mature processes.

The company claims that full integration will enhance asset quality, strengthen synergies, and increase the attributable profit to the parent company’s shareholders. According to the deal data, net profit attributable to the parent would have increased from 3.9 billion to 4.655 billion yuan after the acquisition (comparing January to August 2025), while earnings per share would rise from 0.49 to 0.55 yuan.

Beyond the accounting benefits, the goal is clear: simplify ownership, capture more profits, and gain greater decision-making control over a key plant amid the ongoing race for domestic capacity.

Big Fund returns to the core of China’s strategy

The Big Fund is one of the most important tools of China’s semiconductor industrial policy. Its role is not solely financial; it acts as a vehicle for aligning the State, strategic companies, local governments, and national goals of technological independence.

Following the operation, the Big Fund becomes the third-largest shareholder of SMIC. Based on the disclosed data, the National Integrated Circuit Industry Investment Fund will hold about 357 million A-shares, representing approximately 14.03% of SMIC’s A-shares and 4.17% of total capital. Adding Xin Xin Hong Kong, which acts in concert with the fund and holds H-shares, the combined stake is around 6.80% of total capital. Additionally, the second phase of the Big Fund holds another 1.49% interest.

This move is notable because Xin Xin Hong Kong had reduced its stake over several quarters. The operation changes the picture: even though an entity linked to the Big Fund sold H-shares, the fund itself gains influence through the receipt of new A-shares in exchange for its stake in SMIC Northern.

The political message is clear. China is not abandoning SMIC. Instead, it is reorganizing, indirectly capitalizing the company, and consolidating critical assets within a more integrated structure.

An operation with immediate winners on paper

One of the most debated points is the issuance price. The new shares were issued at 74.20 yuan each, while SMIC’s recent closing on Shanghai was around 151.53 yuan. This means that shareholders receiving the new shares acquired them at well below the current market price.

According to calculations reported by Chinese financial media, the Big Fund has an unrealized gain of approximately 27.6 billion yuan on the shares received, although these shares are subject to a 12-month lock-up. Other shareholders involved would also see substantial unrealized gains.

The controversy is understandable. When a private placement or issuance sets a reference price from the past and the stock surges before the close, new shareholders can receive shares at prices far below the current market, which can be perceived as unfair dilution by small investors, even if the transaction has strategic logic.

This case arrives as Chinese regulators have begun advising some listed companies to review pricing references in private placements, bringing them closer to the actual time of issuance. The tension between regulatory rules, market expectations, and industrial interests reemerges: Beijing aims to support key sectors but also needs its markets to maintain confidence among retail and institutional investors.

Why has SMIC surged?

The operation occurs with SMIC at valuation highs. The company’s market cap has surpassed one trillion yuan and reached around 1.3 trillion yuan following the recent close at 151.53 yuan per share. The market has rewarded several factors: strong local chip demand, AI-related expectations, capacity expansion, and the perception that SMIC will remain a protected element of China’s industrial strategy.

Geopolitical context also plays a role. US export restrictions on advanced equipment and high-performance chips have compelled China to accelerate domestic manufacturing. In this environment, SMIC doesn’t need to beat TSMC in 2nm nodes tomorrow to be strategic; it suffices to expand capacity in processes where China has huge demand and import substitution has political and economic value.

The risk is that the valuation discounts too many expectations. SMIC remains limited by access to the most advanced lithography tools, especially EUV. It must leverage available processes through engineering, packaging, design, and optimization. It can gain significant capacity domestically without reaching the global technological frontier, but the market could penalize any significant disappointment if expectations have become too high.

China consolidates before accelerating

The purchase of the remaining 49% of SMIC Northern is not a traditional expansion. SMIC is not acquiring an external company to enter a new market. It is fully integrating an asset it already controlled, which says a lot about the current phase of China’s semiconductor industry.

After years of massive investment, subsidies, new fabs, and numerous local projects, China now needs to consolidate assets, organize stakes, improve efficiency, and focus resources on capable, large-scale producers. Self-sufficiency is not just about building fabs; it also requires governance, capital discipline, capacity utilization, local supply chains, and companies capable of absorbing long investment cycles.

In this context, SMIC’s move can be seen as a step toward a clearer structure: fewer minority partners in a key subsidiary, more direct control by the parent, and closer alignment with the state investor. For an industry subject to external sanctions and restrictions, this coordination can be advantageous.

A message for Washington and Europe

The message to the US is clear: restrictions have slowed China in the most advanced frontier, but they have also strengthened the push for a resilient domestic base. Every deal like this shows that Beijing does not wait for export rules to change; it reorganizes capital, absorbs assets, and pushes its national champions forward.

For Europe, the implications are also significant. The continent debates technological sovereignty, chip fabs, dependence on ASML, indigenous design, cloud, and AI. China, despite its issues and excesses, is deploying public capital and specialized vehicles to sustain a continuous industrial strategy. Europe tends to act more slowly, with more fragmentation and less capacity to align funding, market, and production.

The SMIC case should not be romanticized. State intervention can cause inefficiencies, distortions, overcapacity, and privileges for select actors. However, it also underscores that in semiconductors, scale, patient capital, and political support matter as much as engineering.

SMIC’s financial operation and China’s industrial message highlight that the chip race is not just about advanced nodes, GPUs, or export restrictions. It’s also about control of manufacturing, funding expansions, absorbing dilutions, and being willing to wait years to reduce external dependency.

Frequently Asked Questions

What exactly did SMIC do?
SMIC completed the acquisition of the remaining 49% of SMIC Northern via issuance of 547 million new shares, valued at 40.601 billion yuan.

What is China’s Big Fund?
It is the National Integrated Circuit Industry Investment Fund, a state-backed vehicle for financing and coordinating strategic investments in semiconductors.

Why is SMIC Northern important?
It is a key subsidiary of SMIC dedicated to 12-inch wafer fabrication in Beijing. With this move, it becomes fully controlled by SMIC.

What does it mean that the Big Fund is the third-largest shareholder?
It reinforces the Chinese government’s influence over SMIC and confirms that the company remains a central piece of the national strategy for chip self-sufficiency.