China releases top chip investor to bolster semiconductor efforts

China has released a top chip investor after an eight-month detention as the country battles to bolster its semiconductor industry in the face of Washington’s containment efforts.

Chen Datong, head of Yuanhe Puhua (Suzhou) Investment Management, also known as Hua Capital, was released this month as Beijing seeks help from chip experts to navigate tough western sanctions, according to two people with direct knowledge of the matter.

Hua Capital, a Rmb10bn ($1.5bn) investment firm that has seeded more than 150 Chinese chip companies, was at the forefront of Beijing’s efforts to jump-start its domestic chip production.

Chen was detained in August last year amid a storm of investigations into China’s chip industry, with officials irate that tens of billions of dollars poured into ending China’s reliance on foreign semiconductors had failed to seed any major breakthroughs.

The country’s top anti-corruption agency launched multiple probes last year into groups tied to the $47bn National Integrated Circuit Industry Investment Fund, China’s premier semiconductor investment vehicle known as the “Big Fund”, detaining more than a dozen top chip executives and officials. Chen’s firm was one of those that received funding from the Big Fund, and he was also an independent member of its investment committee.

“The dire situation of the US-China technology war has forced Beijing to decide to release him as soon as possible,” said a government official in the capital.

Chen did not respond to a request for comment.

Tightening US controls on access to advanced technology have forced a major rethink in Beijing’s approach to supporting the sector in recent months.

Chinese officials are keen to ensure the probes do not derail the industry entirely. Before leaving his post this month, vice-premier Liu He, the country’s economic tsar, surveyed semiconductor companies in Beijing and hinted China would allow entrepreneurs and top talent sufficient space and support.

Chen funnelled more than 80 per cent of Hua Capital’s investment into locating and incubating domestic alternatives to foreign technology, a vital piece of China’s effort to build up its local chip industry under pressure from Washington’s tightening export controls.

“China is full of government funds that want to invest in semiconductors, but there is a lack of professional investors like Chen, ​​” said a tech-focused private equity executive close to the 68-year-old. 

Chen first found success in California after conducting research at the University of Illinois and Stanford. In 1995, he co-founded OmniVision Technology, a chipmaker for cameras, which was listed in New York, until Chen partnered with Chinese state groups to take it private a decade later. He renounced his US citizenship in 2014, committing to help build up China’s chip industry.

Details of Chen’s long confinement remain unclear, with one person saying he had “lost weight” while another said he was “healthy” post-release. China’s anti-graft agency can hold people in an extrajudicial system for months or years before turning them over for formal prosecution in court.

An employee at Hua Capital said Chen’s release “was very good news” but noted he was unlikely to be returning to the office any time soon. “It is too early to discuss his future semiconductor investment plans,” the person said.

The probes into the Big Fund also ensnared executives from Tsinghua Unigroup, a failed state-investment group also backed by the Big Fund. Its chair Zhao Weiguo was handed over to prosecutors on Monday after a lengthy detention by the National Commission of Supervision.

The National Commission of Supervision did not respond to a request for comment.

Chen’s detention spread fear across China’s chip industry, particularly for those working in the country with US citizenship, who under new US rules were being forced to decide between their American passports or working at Chinese chip companies.

“If Chen had not renounced his American citizenship in the first place, he might not have been taken away so suddenly,” said an executive from a Chinese chip equipment supplier.

“It chilled the hearts of many people who chose to retain their US citizenship and give up their jobs in Chinese semiconductors last year precisely because they feared being taken away like Chen Datong.”

Additional reporting by Cheng Leng in Hong Kong

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