Wuhan Hongxin Semiconductor $20 Billion Promise Was Wafer Thin

Wuhan Hongxin Semiconductor Manufacturing Co. Ltd. has failed on a $20 billion investment, according to reports from the Securities Times and Caixin Media, among others.

Wuhan Hongxin Semiconductor assured investors it would produce chips from 14 nanometers to 7 nanometers and build a wafer-level advanced packaging production line. However, South Korea's Samsung Electronics and Taiwan's TSMC are the only companies to have successfully mass produced 7 nanometer chips.

In January Wuhan Hongxin Semiconductor mortgaged a lithography machine, essential to the chip process, to a local bank in Wuhan province, with an assessed value of 581 million yuan ($85.24 million). Construction on the Wuhan factory is unfinished.

The Capital Crunch

An official document from the Wuhan Dongxihu district government in July revealed the Wuhan Hongxin Semiconductor project had stalled owing to "a large funding gap." The document published on the internet was subsequently removed. 

Founded in 2017 Wuhan Hongxin Semiconductor amassed more than $18.7 billion in investments from the China government and others between 2018 to 2019.

One of the project subcontractors, Wuhan Huanyu, has sued Wuhan Hongxin and told a court that "as the biggest shareholder of the project Beijing Guangliang was disingenuous from the outset to invest and merely transfer risks to other creditors." The general contractor of the project reportedly owes subcontractors 41 million yuan.

The Shell Game

Beijing Guangliang Technology holds a 90% stake in the project with 2 billion yuan in registered capital. However, none of that was paid up.

"The project has other 'invisible' shareholders, who cannot be found through official information platforms," another subcontractor told Securities Times. Meanwhile, the general contractor said shareholder information may soon be revealed.

The largest shareholder in the project, Beijing Guangliang, was established in 2017 immediately preceding Wuhan Hongxin. It was registered to a Beijing residential unit. As of November, Beijing marketing supervision bureau put Beijing Guangliang on the list of "abnormal business operation." 

The actual controller and legal representative of Beijing Guangliang previously invested in catering, medication, insurance and education and had no background in specialized electronics, according to public information.

Government Chipping In   

Wuhan Dongxihu district documents also indicate the project failed to submit required reports to the National Development and Reform Commission. Therefore, the project was denied a large-amount of semiconductor funding from the government, Beijing-based Caixin Media reported.

Part of Beijing's "Made in China" plan targets increasing the domestic content of core materials to 40% by 2020 and 70% by 2025. The government is committed to spending $300 billion to achieve this.

However, even if Wuhan Hongxin Semiconductor had received government backing, semiconductor industry projects are high risk. A $100 million manufacturing plant set up by U.S. chip company GlobalFoundries and the Chengdu city government reportedly failed earlier this year. A $3 billion government-backed chip plant owned by Tacoma Nanjing Semiconductor Technology went bankrupt in July after failing to attract investors, the South China Morning Post reported.