China’s ambitions to vault into the top ranks of the global semiconductor industry have suffered a nasty setback with the failure of an US$18.7 billion plan to develop state-of the art chips needed to drive 5G mobile handsets.

Wuhan Hongxin Semiconductor Manufacturing Co., set up in 2017 to build the latest generation of microchips, has run into funding problems for its new fabrication plant, the city’s Dongxihu district government said late last month. The company received 128-billion yuan (US$18.7 billion) from local governments in 2018 to launch the project to build chips based on 7-nanometer thin wafers.

President Xi Jinping’s administration had made a top priority of developing products capable of bridging the technology gap with the U.S. and its allies – and plugging the yawning trade deficit from relying on imported semiconductors to power the billions of high-tech gadgets assembled every year in Chinese factories.

China has yet to master the technology needed to make processors for 5G phones, which have to be small and thin enough to dissipate the heat generated in dealing with data processing in the fast-speed network, said Francis Fong, honorable president of the Hong Kong Information Technology Federation.

HSMC also pledged high-end chip-making equipment it had brought from Dutch firm ASML as collateral to borrow 580 million yuan from a bank in January, according to information obtained from mainland China business registry website qixin.com. The machinery was listed as brand new in the filing.

Construction work on four blocks of dormitories stopped in December when HSMC failed to pay the contractors, according to one of the subcontractors.

The Wuhan company is headed by Chiang Shang-yi, a former senior executive of the world’s leading microchip maker, Taiwan Semiconductor Manufacturing Co.

TSMC and South Korean tech giant Samsung are the only companies now able to make 7nm chips. Intel recently announced its rollout of 7nm chips has been delayed by at least six months due to a defect. China’s Semiconductor Manufacturing International Corp. – or SMIC – is expected to have the capacity to manufacture 7nm chips in the coming year.

China is only able to make 14nm to 12nm chips now, said Fong.

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