Posts Tagged ‘Tsinghua Unigroup’

China’s Chip Industry Is Doomed

Monday, September 19th, 2022

This is a story that’s been bubbling on for a while, but it looks like the U.S. government is about to slam down export restrictions on chipmaking equipment.

The administration of US President Joe Biden next month is to broaden curbs on US exports to China of semiconductors used for artificial intelligence and chipmaking tools, several people familiar with the matter said.

The US Department of Commerce intends to publish new regulations based on restrictions communicated in letters earlier this year to three US companies — KLA Corp, Lam Research Corp and Applied Materials Inc, the people said, speaking on the condition of anonymity.

Every wafer fabrication plant in the world uses equipment from one of those three companies. Applied Materials and LAM Research (along with Tokyo Electron) have their fingers in almost all areas of chipmaking equipment (PVD, CVD, Etch, etc.), while KLA (formerly KLA-Tencor) dominates the wafer inspection equipment segment. Add ASML in the Netherlands, and those five absolutely dominate the semiconductor equipment market.

The letters, which the companies publicly acknowledged, forbade them from exporting chipmaking equipment to Chinese factories that produce advanced semiconductors with sub-14 nanometer processes unless the sellers obtain commerce department licenses.

This is where things get tricky. SMIC claims they can do 7nm, but everyone outside China doubts they can do it reliably, repeatably and profitably. SMIC announced they’re about to start manufacturing 14nm, and that they can probably do. Practically, they’re the only semiconductor manufacturer in China that can do sub-14nm, as just about everyone at the top of the next biggest semiconductor manufacturer, Tsinghua Unigroup, just got arrested in July.

There’s even talk that they’re actually zeroing in on FinFET technology specifically, though they may also ban sales of older chipmaking equipment as well.

Without a continued stream of machines, spare parts and technical know-how from those five semiconductor giants, China’s semiconductor industry is doomed. China’s domestic semiconductor equipment industry is essentially garbage, and they’re so far behind in so many areas that they can’t even steal their way to parity. The knowledge gulf is just too vast.

Min-Hua Chiang at the Heritage Foundation notes just how badly China’s domestic semiconductor industry is screwed.

According to World Trade Organization statistics, China’s trade deficit in integrated circuits and electronic components (including Hong Kong’s trade deficit) has almost doubled from the equivalent of $135 billion in 2010 to $240 billion in 2020.

The growing trade deficit in integrated circuits reveals one crucial fact: Achieving technological self-reliance is still a faraway Chinese dream. To keep its exports growing, China has no other way but to keep importing advanced chips to assemble into consumer goods with high-tech intensity (e.g., smartphones, tablets, and the like).

Although China (including Hong Kong) is also the largest exporter of semiconductor chips in the world, less than 7% of chips produced in China were made by Chinese semiconductor companies in 2021.

More than 90% of chips produced in China are made by foreign firms. In other words, China’s exports of semiconductor chips are overwhelmingly dominated by foreign companies.

Its inferior level of technology is the main reason for China’s chip reliance on foreign firms. While Chinese firms are stuck with advancing toward 7nm chips, the Taiwan Semiconductor Manufacturing Co. and Samsung are progressing towards mass production of 3nm chips this year. Intel plans to take over TSMC’s leading role in semiconductor technology by 2025.

The competition among a few tech giants in the U.S., Taiwan, and South Korea is clear, and the Chinese firms are not likely to jump into the global technology competition in the semiconductor industry anytime soon.

The U.S. restrictions on exporting chipmaking equipment to China’s largest semiconductor firm, Semiconductor Manufacturing International Corp., have not only deterred China’s technological advancement, but also exposed the fundamental mismanagement problems inside China’s semiconductor industry.

Xi might not have noticed his industry’s poor performance had China been able to continue to produce chips with foreign equipment.

Some parts about the Tsinghua scandal snipped.

Several Taiwanese executives leaving China’s semiconductor industry last year is another major setback in the development of China’s semiconductor industry.

China not only spent tremendously on building chip plants and purchasing expansive equipment, but also on recruiting talent from overseas. Over the past few years, China recruited more than 3,000 skilled workers from Taiwan to work in China’s semiconductor industry.

China amassed enormous capital, talent, and foreign equipment, but the problem is with governance. Xi’s absolute authority encouraged a rush into China’s semiconductor industry. Moreover, the extraordinary integration of the public and private sectors in China has twisted industrial development toward short-term profit-making, instead of long-term accumulation of manufacturing strength and technological improvement.

Xi’s “wolf warrior” diplomacy has further overshadowed the outlook of its semiconductor industry. China’s success relies on close partnerships with various suppliers and customers in different countries across the globe. Alienating them on the geopolitical front only undermines those relationships.

The U.S. ban on exporting chipmaking machines to China was the straw that broke the Chinese semiconductor industry’s back.

On top of that, the CHIPS and Science Act just signed into law bans semiconductor companies receiving U.S. government subsidies from investing in China for the next 10 years. There are major loopholes in that prohibition, but if Congress can manage to keep the administration’s feet to the fire—including by tightening the legal restrictions—it could have a major impact on China’s tech development.

In addition, the U.S. has extended the export restriction to 14 nm chipmaking machines to the Semiconductor Manufacturing International Corp. and other foreign chipmakers in China. A specific electronics design automation software for making advanced chips is also banned from exportation to China.

Without foreign investment and inputs, China is only likely to deepen its reliance on importing advanced chips from overseas.

Peter Zeihan notes (correctly) that China’s semiconductor industry has been singularly unable to fab advanced chips on their own.

Not to mention that fraud still abounds. Chinese CPU semiconductor startup Quillion Technology closed up shop three months after raising $89 million.

$89 million is probably enough to get you to tape-out for a fabless semiconductor house designing a smaller chip (or maybe even a low-power ARM-based CPUs for embedded markets), but it’s a woefully small sum for a real cutting-edge CPU company, and laughable if they intended to be an integrated design manufacturer fabbing their own chips, where building even a trailing edge fab starts in the billions.

More on that topic:

Takeaways:

  • “Money seems to have a strong corruptive power over CCP officials that they can’t resist. Like China’s real estate industry, China’s semiconductor industry is also plagued with corruption, over-construction, and highly leveraged capital maneuvers.”
  • She goes over the history of the Chinese “Big Fund” for semiconductors I covered here, and later talks about the indictments.
  • “The state-run Semiconductor Investment Fund was used more as an instrument to speculate in stocks than an institution for conducting basic R&D. The government-backed fund, aka the “Big Fund,” has investments in 2,793 entities within three layers of ownership.” Very few of them have the word “semiconductor” in their names. (Like I said before, shell games all the way down.)
  • From 1984 to 1990, the Ministry of Electronics Industry delegated the management of the vast majority of state-owned electronics enterprises to local provincial and municipal governments. While these state-owned enterprises (SOEs) obtained more autonomy, something strange happened. These companies imported outdated integrated circuit production lines that had no commercial value. The wasteful projects cost money, but people used the opportunities to take foreign trips, receive kickbacks, and send their children abroad. And this happened on a large scale.

    Pretty much classic ChiCom behavior.

  • China’s high-tech industry, like its financial industry, is dominated by powerful CCP families, and the Jiang Zemin family is one of them. In 1999, Jiang Zemin gave his oldest son, Jiang Mianheng, the reins of China’s “autonomous chip development.” As vice president of the Chinese Academy of Sciences (CAS) and president of the Shanghai branch for many years, the junior Jiang has long held the turf of China’s science and technology sector. He is also personally involved in the semiconductor business. His Shanghai Lianhe investment has holdings of Shanghai Zhaoxin Semiconductor Company.

  • Classic story:

    Chen Jin, a former junior test engineer at Motorola, joined Shanghai Jiaotong University in 2001 after returning to China.
    He was given the responsibility to develop the “Hanxin” chip, an important part of the state-run high-tech development program known as the “863 Program.” In just three years, Chen obtained 100 million in R&D funding and applied for 12 national patents. On Feb. 26, 2003, Chen’s team officially released the “Hanxin 1” chip. The Shanghai Municipal Government, the Ministry of Information Industry, and the Chinese Academy of Sciences all backed his work. The expert panel declared the “Hanxin 1” and its related design and application development platform as being the first of its kind in China and achieving an important milestone in the history of China’s chip development. Subsequently, Hanxin 2, 3, 4 and 5 chips were launched, all of which were claimed to have reached an advanced level globally. The Hanxin series of chips even entered the General Equipment Procurement Department of the Chinese military. However, 3 years later, on Jan. 17, 2006, “Hanxin 1” was revealed to be completely fake. Chen downloaded a Motorola chip source code through a former Motorola colleague. Then he secretly bought a batch of Motorola dsp56800 series chips, paid a peasant to scrape the original Motorola logo with sandpaper, and asked a local Shanghai print shop to print the “Hanxin” logo on it.

  • China correctly identified semiconductors and semiconductor equipment as key technologies for truly becoming the world’s preeminent technological manufacturing giant. Unfortunately for them (and fortunately for us), the CCP’s endemic culture of corruption and their top-down command economy are antithetical to the onrush of capitalist technological innovation that powers Moore’s Law.

    Top Chinese Chip Executives Arrested

    Saturday, August 6th, 2022

    Remember Tsinghua Unigroup, a wholly owned business unit of Tsinghua University and itself owner of Yangtze Memory Technologies Co. (YMTC) (Previously mentioned here.) Well, it turns out that a bunch of their top executives just got arrested:

  • The video shows a picture of six semiconductor executives, all of whom have reportedly been arrested:
    • Dia Shijing, co-president of Tsinghua Unigroup
    • Lu Jun, president of Huaxin Investment
    • Zhao Weiguo, chairman of Tsinghua Unigroup
    • Ding Wenwu, president of National IC Industry Investment Fund,
    • Zhang Yadong, president of Tsinghua Unigroup
    • Qi Lian, another co-president of Tsinghua Unigroup

    How a company runs with three presidents I couldn’t tell you. Must be a Chinese thing.

  • “In the past few days, several senior executives of the organization behind the semiconductor industry in Mainland china have been taken away by the CCP Central Commission for Discipline, Inspection and Investigation.” Given my knowledge of communist nomenclature, I strongly suspect that this is not the sort of organization you want to enfold you in their tender mercies.
  • “In 2014, the General Office of China’s Ministry of Industry and Information Technology announced the official establishment of the National Integrated Circuit industry investment Fund Company Limited [ICF], also known as the National Big Fund or big fund.” Probably best to think of them like USA’s SMEATECH, but with a whole lot more opportunities for graft.
  • Together two rounds of government funding added up to 320RMB, or about $47.4 billion, which should have driven additional public/private capital investment of some $240 billion divided up between China’s Ministry of Finance and large central Chinese enterprises, most of which are also owned by the state. Even for the semiconductor industry, that’s a lot of cheddar.
  • By some estimates, $100 billion of that had already been spent by 2021.
  • “The two phases of investment cover all aspects of integrated circuits (ICs), including IC manufacturing IC design, packaging and testing semiconductor materials and equipment, and industry ecological construction.”
  • ICF provides overall direction and management, while Huaxin Investment provides management of the second phase of fund investment.
  • “Eight years have passed, but high-end Chinese chips haven’t yet been produced, and the management of the state level chip industry has collapsed.” Reading between the lines, this means TSMC is still kicking their ass. If that’s the standard, then it’s a bit unfair because every other semiconductor manufacturer in the world is in the same boat.
  • On July 28, Xiao Yaqing, head of MIIT, fell from power. “Xiao was the spearhead of the Chinese communist party’s attempt to build a world-class chip industry, and eliminate its dependence on the US.” He supposedly tried to slit his wrists.
  • “The very next day, Xi Jinping immediately appointed a replacement a longtime aerospace official to take over MIIT.” Yeah, that’s really going to help your semiconductor goals.
  • “On July 15, Lu Jun, former deputy director of the China Development Bank Development Fund Management Department, was investigated Lu Jun was involved in many investment operations of the Big Fund, of which he was the sole manager. He was also former president of Huaxin.
  • Yang Zhengfan, another Huaxin executive, was also taken away.
  • Also arrested: Wang Wenzhong of Hongtai Fund and Gao Songtao, both involved with Huaxin and the Big Fund. And that’s probably not all. Evidently a whole network of semiconductor executives are being rounded up.
  • Dia Shijing of Tsinghua Unigroup was among those reported arrested, but Tsinghua Unigroup is saying “Nah, everything’s good here! Go about your business, citizens!”
  • In July 2021, Tsinghua Unigroup announced that it was overwhelmed by 200 billion RMB of debt and filed for bankruptcy because it couldn’t pay its bonds at maturity. Keep in mind that Tsinghua Unigroup, partially owned by Tsinghua University, is itself owner of YMTC, which is (I think) China’s biggest domestic memory chip manufacturer. Tsinghua/YMTC was previously one of China’s biggest semiconductor manufacturing success stories, second only to SMIC, and supposedly “the largest integrated circuit company in China.” They have actual working fabs up and running. And they’re still evidently a money-losing failure.
  • Tsinghua Unigroup has grown through mergers and acquisitions, buying up over 20 companies. This strategy is not unknown among western companies, as GlobalFoundries and NXP are both the results of a similar strategy. But neither of those companies is on the cutting edge.
  • “Tsinghua Unigroup has been using short-term loans rolling over to create long-term loans. These made the group’s cumulative liabilities too large and its financing structure unbalanced.” Yeah, I bet. “Get big quick” worked for a few doctcom era mega-success stories, but I don’t think it works in semiconductors.
  • Zhao Weiguo once boasted he was going to buy TSMC. Also, I’m going to kick Shaq’s butt in the slam dunk contest just as soon as I take time off from dating all these supermodels.
  • China Development Bank extended Tsinghua Unigroup 100 RMB credit between 2016 and 2020. Still a lot of cheddar.
  • I’m skipping over a whole lot of blow-by-blow “who owns what” in the corporate structure. Imagine if Spectre, the Gotti Family, and the Bank of England all had shares in Amway.
  • “Due to debt, Tsinghua Unigroup abandoned its plan to build DRAM memory chip manufacturing plants in Chongqing and Chengdu in southwest China earlier this year.” I bet that left a lot of pissed-off local commissars holding the bag.
  • “When the chip industry becomes a national strategy, but with no real oversight, it becomes a disaster zone of corruption, and a big cake for those in the circle to get rich for themselves.” True of any industry anywhere, but especially true of China, and especially true of semiconductors, where “fake it until you make it” isn’t an option if you’re actually building fabs.
  • “China cannot make high-end chips to this day.” True.
  • “American chip technology is far ahead of the world.” Also true, though with caveats. For semiconductor manufacturing, TSMC is on the cutting edge, with Intel and Samsung within striking distance. For semiconductor leaders, two American companies (Applied Materials and Lam Research) dominate a fair number of technologies, but Tokyo Electron is competitive in many of them, and ASML dominates the stepper market.
  • Skipping over the bits where China stole US (and other) tech, which should be familiar by now.
  • Enter the Trump Administration, “blacklisting and embargoing more than 600 Chinese high-tech companies and high-end manufacturing companies, as well as universities and research institutions.” Pissing off your biggest trade partner is generally not a great plan.

  • Result: Bottlenecks in China’s supply chains.
  • EDA makes software to design chips, and China has no real substitute.
  • SMIC’s supposed 7nm chip breakthrough (which I’m still skeptical of) reportedly copied TSMC technology.
  • Skipping over the coverage of America’s own ill-advised semiconductor subsidies.
  • Semiconductors are still a big item in China most recent Five-Year Plan (and yes, the Chicoms still use Five Year Plans, just like Mama Stalin used to make).
  • “The outside world has not seen the investment of the Big Fund break any bottleneck. However, the earthquake happening in the industry has directly shown people that there is a deep corruption in the Chinese chip industry.” Why should it be different than any other Chinese industry?
  • And just who is going to step up to those jobs running China’s increasingly-unlikely-to-succeed semiconductor moonshot, given that the last batch got rounded up by the Chinese Inquisition?
  • Interesting bit of history: Previous CCP head Jiang Zemin put his own son Jiang Mianheng in charge of developing China’s semiconductor industry, and also managed to make the country even more corrupt than it already was. And here we are.
  • It’s ironic that just as Washington was passing a giant graft bucket of semiconductor subsidies because China was supposedly kicking our ass, China itself was sacking the very people presiding over China’s own bucket of graft for not catching up to the west. The truth is somewhere between.

    China was never going to catch up to western semiconductors because the gap was too large and you need a crazy swarm of free market capitalist entrepreneurs risking private money to eek out important incremental process tweeks to keep Moore’s Law going. China was never going to have that as long as they suffered under Communist rule. And a huge percentage the government money that was sloshed into semiconductors was indeed swallowed up by graft and diversion of funds. But all that money does appear to have helped China close the gap some. Granted, a lot of that was via systematic IP property theft, but it got them into the game.

    Ultimately it wasn’t nearly enough, just as the prophecy foretold.

    Is China’s semiconductor industry a giant pit of graft, disappointment and failure? Yeah, but probably less than most of the rest of the economy.

    China’s Semiconductor Industry: Shell Games All The Way Down

    Wednesday, April 7th, 2021

    I’ve written about China’s semi-illusory semiconductor businesses before: “In China the question is always how much of that investment is real, and how much is illusion. A lot of those ‘under construction’ fabs never materialize, either unable to attract investors or having their funds magically siphoned off to some other enterprise.” While researching yesterday’s piece on the current semiconductor shortage, I came across this Emily Feng NPR piece on more multi-million dollar shenanigans in that space:

    In 2019, the U.S. sanctioned two major Chinese telecom firms, temporarily cutting them off from a vital supply of semiconductor chips — bits of silicon wafer and microscopic circuitry that help run nearly all our electronic devices.

    Wuhan Hongxin Semiconductor Manufacturing Co. promised a way out, toward self-reliance in the face of increasingly tough U.S. curbs on this technology. The private company once boasted on its website that it would raise a total of $20 billion to churn out 60,000 leading-edge chips a year.

    None of that would come to pass.

    Hongxin’s unfinished plant in the port city of Wuhan now stands abandoned. Its founders have vanished, despite owing contractors and investors billions of yuan.

    The company is one of six multibillion-dollar chip projects to fail in the last two years. Their rise and fall is a cautionary tale in an industry that is flush with state cash but still scarce on expertise — and a preview of the expensive and winding road China will have to take toward semiconductor self-sufficiency, now a national security priority.

    Hongxin Semiconductor began in November 2017 as a joint venture between Wuhan’s Dongxihu district government and a company called Beijing Guangliang Lantu Technology.

    The venture got off to a good start — on paper — but a closer look shows there were a number of issues. One of the co-founders of Guangliang had only finished elementary school and was allegedly using false credentials and a different identity, Cao Shan, according to 36Kr, a Chinese tech news outlet. Another co-founder, Li Xueyen, dabbled in selling Chinese traditional medicine, alcohol and tobacco before starting Hongxin, according to corporate records reviewed by NPR.

    These are not the profiles you look for in semiconductor startup founders.

    The two could not be reached for comment.

    Yeah, I bet.

    To balance out their lack of technical know-how, the Hongxin founders lured in one of Taiwan’s most famous semiconductor engineers, Chiang Shangyi, to serve as director. He left the company in 2020 to become the deputy chairman of China’s Semiconductor Manufacturing International Corp., telling Hong Kong paper South China Morning Post that his time at Hongxin was “a nightmare.” Chiang did not respond to NPR requests for comment.

    Hongxin made headlines in December 2019 when it managed to buy an older model lithography machine made by Dutch company ASML, despite American lobbying to prevent its sale to the Chinese chipmakers.

    OK, on the face of it that sounds pretty impressive. If you want to have a cutting edge fab, you have to have one of ASML’s top of the line Extreme Ultraviolet (EUV) steppers. In almost every other segment in the semiconductor equipment market, there’s competition between the three big players (Applied Materials, LAM Research and Tokyo Electron) and occasionally other companies (like Axcelis for ion implanters). But while you might be able to get away with lesser Deep Ultraviolet (DUV) lithography machines from Nikon or Canon for some tasks, for the smallest features on cutting edge 7 and 5nm nodes, you simply can’t do without an ASML EUV stepper. (More background here.)

    Well, guess what? The vaunted ASML tool Hongxin bought is apparently an older 1980 model (presumably this one, which dates from 2015, not 1980) which is DUV, not EUV.

    Back to the NPR piece.

    ASML sold the multimillion dollar piece of equipment — used to etch semiconductors — because of Jiang’s top-notch reputation, according to two people familiar with the sale who were not authorized to speak publicly about it. ASML declined to comment.

    Feng (or her editors) goofed here. ASML makes lithography machines, not etch tools.

    Hongxin’s timing was opportune. Chinese chip companies still rely heavily on European, American and Japanese technology — much of which, in turn, relies on American intellectual property, which the U.S. appears determined to keep out of Chinese hands. China’s semiconductor demand continues to surge beyond what it can supply itself; trade data show that in 2019, Beijing imported around $350 billion worth in chips.

    Given that reliance, China’s central and local governments have been pumping money into the sector to accelerate domestic chip design and manufacturing. The country’s latest five-year economic planning document released in March identifies integrated circuits — semiconductors — as a priority sector for research and development funding.

    When governments starts pumping big money into private companies, you can be sure multiple scams are never far behind.

    The all-out approach has notched achievements. Successful chip design companies such as Cambricon and Huawei’s HiSilicon have allowed Huawei to replace some of its U.S.-designed chips in its mobile phones.

    Cambricon and HiSilicon are both fabless design houses, and both get their chips fabbed at foundries like TSMC. Huawei is one of the largest electronics companies in the world, with over $100 billion in annual sales, and they don’t own their own fab.

    Not far from Hongxin is Yangtze Memory Technologies Co. (YMTC), a partially state-owned company that plans to double its output of memory chips to overtake South Korea’s Samsung and SK Hynix, which currently dominate production.

    Memory is a tough business. SK Hynix exists because Hyundai and LG (aka Lucky Goldstar), two huge Korean chaebols who hate each other only slightly less than rival Samsung, found the sledding too tough to go alone and had to combine their respective semiconductor operations to survive. Memory makes money hand-over-fist in boom times, but barely breaks even during busts. It’s less technically demanding than some other semiconductor segments, so China could conceivably make some headway there.

    YMTC is a subsidiary of Tsinghua Unigroup, a wholly owned business unit of Tsinghua University. Hu Haifeng, Communist Party secretary of Tsinghua Holdings, is the son of Hu Jintao, former CCP General Secretary and President of the People’s Republic of China.

    Hongxin sought to capitalize on this momentum. It rented a discreet office on the 25th floor of Wuhan’s Dongxihu district government headquarters.

    “Cao” and his partners promised to pitch in 1.8 billion yuan ($276 million) in investment on top of 200 million yuan ($30.7 million) in starting funds from Dongxihu district.

    Wuhan’s city government was, around the same time, also beginning construction on a cybersecurity park to provide office and residential space for technology businesses, and it was looking for a flagship company to anchor the complex. In 2018 and 2019, the city named Hongxin its most important “critical construction project” and the company began building its factory next door.

    As early as late 2019, even while Hongxin was being lauded by Chinese media for securing an ASML machine, several Wuhan-based construction crews were scrambling to get paid for millions of dollars of work for Hongxin.

    “Four months ago, [Hongxin’s] payments to us started to be short, and now we are missing 18 million yuan [$2.76 million],” one contractor, Lu Haitao told another, Wang Liyun in December 2019, according to phone recordings NPR obtained. Wang confirmed the authenticity of the recordings when reached by phone. Lu did not respond to several texts and calls from NPR. Wuhan’s municipal government did not respond to a request for comment.

    Meanwhile, two other semiconductor companies — Tacoma Semiconductor Technology Co. Ltd. and Dehuai Semiconductor Technology Co. Ltd. — were also running out of cash.

    Tacoma was over 350 miles from Hongxin along the Yangtze river, in the port city of Nanjing. There, the Taiwanese entrepreneur Joseph Lee had initially found a welcome harbor for his own ambitions, starting Tacoma in the city in 2015. He pledged to raise $3 billion to make wafer chips, with consultation from Israeli company Tower Semiconductor (formerly TowerJazz). Tower declined to comment for this story.

    Lee continued pitching other local governments. In 2016, he co-founded a second company in Jiangsu province’s Huai’an city, named Dehuai Semiconductor. (Lee sold his stake the same year, citing a clash in vision with the firm’s other managers.)

    In 2017, Lee invited Chinese media to tour Tacoma’s facilities, declaring the company had somehow scored 200 million yuan ($30.7 million) in sales. Tacoma had yet to even finish construction on its manufacturing facilities.

    Lee initially agreed to an NPR interview for this story but later retracted it, citing state pressure. “Officials have told me not to talk to the media,” he said by text.

    Yeah, I bet.

    By 2018, Tacoma’s employees were blasting an online forum run by the Nanjing mayor’s office with complaints about unpaid salaries. Chinese corporate records show at least 50 legal complaints have been filed against Tacoma in provincial court, all seeking to recoup construction costs or unpaid wages. Lee disputes owing employees 20 million yuan in unpaid wages.

    “Real or fake, the truth is in the hearts of the people,” Lee wrote shortly after these allegations, on Wechat, the Chinese messaging app, and cited a verse from the New Testament: “Now faith is the certainty of things hoped for, a proof of things not seen.”

    Citing bible verse when rumbled for his scam. Classic.

    Hongxin, Tacoma and Dehuai were able to secure billions of yuan in state funding on the condition they would match that with investment of their own — a commitment that never materialized. Tacoma eventually raised only a fraction — 250 million out of 2.5 billion yuan — of what it promised.

    “We never imagined that when our cash flow dried up, we would not be able to find new [cash flow sources], that we would get in so deep,” he told Japanese broadcaster NHK this March.

    And this is the problem with doing business in China in general: it’s shell games all the way down. At lot of times, loans and investments are siphoned through four or five different entities from the purposes for which they were originally obtained. Everyone’s trying to get rich, and they hope to survive on smoke and mirrors long enough to get profitable. Imagine if Kleiner Perkins invested $25 million in a software startup, only to find that money was spent on a noodle shop, a used car dealership and a golf club manufacturer.

    Sometimes it works. You can build a company on margin, get profitable quickly, and be paying off investors and contractors before anyone realizes how shaky the entire enterprise is.

    But you can’t do that with semiconductor manufacturing. The startup costs are simply too high, easily in the billions. Very, very few companies can afford to be in a game that expensive. China’s two biggest semiconductor manufacturing success stories, SMIC and Tsinghua Unigroup, all have have CCP direct government investment.

    In this game, little hucksters working the margins have no chance.