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“No experience, no technology, no talent”: how poor supervision of tech investment in China lead to a waste of funds

Hongxing Semiconductor Manufacturing Company (HSMC), a government-backed manufacturing project in Wuhan, has gone belly-up. The 128 billion yuan (HK$153 billion) project is now just an abandoned construction site. The weeds have grown over what is supposed to be the floor of the factory. Local authorities reported that the project was stagnant due to “poor planning and shortage of funds”.

The abandoned Hongxin Semiconductor factory construction site in 2019.
A satellite image in December 2019 shows the 220,000 square metre construction site of the HSMC.

The semiconductor business in China has a history of fraudulent players. Two decades ago, the much-hyped Hanxin microchip project, also known as “heart of the Han” processor was later discovered to be a scam. Workers at the plant were simply replacing Motorola brand chips with the Hanxin logo.The developer, a university professor from Jiaotong University in Shanghai, was found to have stolen the technology from Motorola. He was later found guilty of fraud and banned from state funded projects.

Hanxin One: A 1.1 billion yuan (HK$1.3 billion) scam employed migrant workers from decoration companies. Source: Google Image

In July 2020, Dekema (Nanjing) Semiconductor Technology Co. Ltd declared bankruptcy due to “financial difficulties”, leaving behind 19 billion yuan (HKD$23 billion) in unpaid debt and wages.

China’s state council set a goal to become a global leader in the semiconductor industry by 2030 and aims to produce 70% of the semiconductor by 2025. The central government put up about 764 billion yuan (HK$465 billion) in the industry over the five years, including 388 billion yuan (HK$465 billion) from provincial and municipal governments, according to the report by the Central for Strategic and International Studies. However, the plan to create a domestic semiconductor industry was just a little successful due to “no experience, no technology, and no talent” of the semiconductor industry, for instance, HSMC. 

The company received 15.3 billion yuan (HK$18.3 billion) funding for the operation in 2019, according to the Wuhan Municipal and Reform Commission. 

By July 2020, HSMC was already in trouble. Construction of the factory had stalled since December 2019. The contractor, L&K Engineering that helped build dust-free rooms and mechanical systems for the production facility, showed in its half-year earnings report that they had not been paid for half a year.

On May 9, 2019, L&K Engineering received the “Notice of Winning Bid” from HSMC.
In L&K Engineering's third quarter report in 2020, showed that HSMC owed 700 million yuan (HK$839 million) in contract payments.

A worker who was about to join HSMC was having cold feet. In a post on the question and answer website, Zhihu, he said he was scheduled to join the company on July 15, but was notified about a delay at the beginning of the month. “I don’t know when exactly I will join”, he said.

On June 17, 2020, a netizen named Elmer.liu reported on the Chinese question-and-answer website, Zhihu that HSMC was continuously delaying his entry date; Source: Zhihu

We tried to contact people who posted about the delay, but they refused to be interviewed due to personal safety concerns.

A post in Zhihu read “there was a thunderstorm in HSMC. We saw a few fish on the beach, and even probably saw the sharks. But another wave came. The local state-owned assets took over, and the fish and sharks were hidden again in the water”.
We posted on Zhihu about the issue of the Wuhan government's takeover of HSMC, but some netizens were unwilling to reveal more information.

On Sept. 12, 2019, Wuhan Huanyu Engineering Company won a case against HMSC for failing to settle 41 million yuan (HK$49 million) for the construction service. The court froze HSMC’s account and sealed off the factory site.

On Sept. 12, 2019, HSMC and its partner contractor, Wuhan Torch Construction Group were convicted. The court froze their bank accounts and sealed off the factory site. Source:

Another project contractor, Shengping Precision Gas (Shanghai) Co., Ltd (SPG) also won a case against HSMC for unpaid fees totalling 15 million yuan (HK$17 million).

On Sept. 2, 2020, Wuhan Dongxihu District Court ruled a civil lawsuit between SPG and HSMC and has frozen HSMC’s 15 million yuan (HK$17 million) property; Source:

Syd Lin, director of PricewaterhouseCoopers Hong Kong explained that the Chinese government’s offer of tax and financial incentives, in an attempt to help special industries at a local level sometimes attract unreliable investors.

“I think one of the major reasons is that in the market, there are too many investors doing ‘opportunity shopping’. This means they are seeking chances to get funds from the government for various purposes, inflate the market value of the investment project and may even sell the project to other parties with high premium,” Ms Lin said.

“They package themselves as ‘industry expertise’ with claims to fame or respect,” she added.

Failed projects like HSMC have an impact on local economies. Official documents from Dongxihu District of Wuhan showed a downward trend in the rate of fixed asset investment in the district as a result of the slow progress of individual major projects. 

HSMC, for example, had a total investment of 128 billion yuan (HK$153 billion), which accounted for 44% of the projects in the region, but it was only 11% completed, according to a document from the Dongxihu government in Wuhan.

The Dongxihu government reports in 2019 mentioned that HSMC’s investment completion rate was slower than expected. Source:

Where did the money go?

The Wuhan Municipal Development and Reform Commission invested a total of 128 billion yuan (HK$153 billion) in HSMC to build a 220,000 square meters research and development and manufacturing base. The plan was to purchase 1,200 sets of equipment to produce advanced 14-7 nm chips, according to a Dongxihu government economic report.

The 2019 Donghu District Government report showed that the total construction area of the HSMC project was 220,000 square meters, and it planned to purchase 1,200 sets of equipment. Source:

On Dec. 22, 2019, HSMC purchased a brand new etching machine meant for chip production. The machine was subsequently mortgaged for 581.8 million yuan (HK$697.3 million) to the Market Supervision Administration, according to records on the business information platform, Qixin.

The official website of ASML model TWINSCAN NXT: 1980Di etching machine does not show the price of the equipment. Source:

As of the third quarter of 2020, the announcements or indictments of the above three contractors showed that the total amount owed by HSMC to the contractors was approximately 756 million yuan (HK$904 million).

Although the company encountered financial difficulties as claimed by the government to proceed the operation, it appears that the company used subsidies from the government fund to pay for the etching machine as the company did not put a real money to the project, according to the report in The Cover

Ms Lin explained that the founders of HSMC did not have any experience in the semiconductor sector according to what she had read from online news. She added that the business plan was such that HSMC did not need to fork out any capital investment.

The company is 90% owned by a Beijing-based private firm, Beijing Guangliang Lantu Technology Co., Ltd., and 10% owned by a state firm, according to the Chinese corporate information platform Tianyancha.  The chairwoman of the Beijing-based firm, Li Xueyan, held 54% of the stake. Mo Sen, one of the company directors, held the rest.

Before Nov. 18, 2020, Beijing Guangliang Blueprint Technology Co., Ltd., which is owned by LI Xueyan, holds 90% of HSMC’s shares. Source:

But the Beijing-based firm never put any money into the project according to a report in The People’s Daily.

According to the 2019 Annual Report of HSMC on the National Enterprise Credit Information Publicity System, Beijing Guangliang Blueprint Technology Co., Ltd. was supposed to inject 1.8 billion yuan (HK$2.1 billion) into HSMC. Source: National Enterprise Credit Information Publicity System - WeChat Mini Program.

About Wuhan Hongxing Semiconductor Manufacturing Company

HSMC was founded in 2017, with the aim to build a 14 nm chip production line that can produce 30,000 wafers per month and a 7 nm chip production line with the same capacity. It is a joint venture between the Wuhan government and a Beijing-based firm, Beijing Guangliang Lantu Technology Co., Ltd..

HSMC proposed two phases for the projects. Phase one included construction of the main production facility and a 39,000 square meters research and development building. That was partially completed, but needed more capital to move forward, according to the Dongxihu district government report in July. 

The construction of its phase two facility had barely started and the company was unable to apply for further central government funding due to insufficient preparations. 

“I don’t think it is due to poor planning or the lack of funding. It is just a hoax in the boom of the semiconductor economy as per my understanding of various analyses on the public domain,” said Ms Lin.


Li Xueyan, the chairwoman of the Beijing Guangliang Lantu Technology Co., Ltd., had been in the market for years, but there is no record that suggested she has any experience in the semiconductor industry. She has worked in ecological technology, sold alcohol, set up restaurants, built gardens, and even sold Chinese medicine. All of these were small-scale businesses with a maximum registered capital of 4 million yuan (HK$5 million).

On Nov. 18, HSMC’s shareholder structure underwent a huge change. The previous board of directors, Li Xueyan and others collectively stepped down. Wuhan Xingong Technology Development Co., Ltd., which was founded on Nov. 6 and fully owned by the Wuhan government then took over, according to Tianyancha.

On Nov. 18, 2020, HSMC was wholly owned by Wuhan Xingong Technology Co. Ltd. Source:

“I am not familiar with their management team but resources online indicated that the purpose of the founders was not actually for the development of the semiconductor industry in China,” said Mrs Lin, from Pricewaterhouse.

The Donghu government report published in 2019 stated that there was insufficient auditing process in the entry of enterprises. It also mentioned that there was no management review and the project did not conform with the plan.

The report stated that the government had insufficient auditing processes in the entry of enterprises. Source:

Was the Wuhan local government aware of the warning in advance?

On Oct. 20, 2020, Meng Wei, the spokesperson for China's National Development and Reform Commission, criticized local governments as some “three No” companies with no experience, no technology, and no talent have joined the integrated circuit industry. 

The National Development and Reform Commission mentioned that some companies without any qualifications have participated in local chip investment projects. Source:

He added that some local governments lacked understanding of integrated circuit development law, resulting in risky projects. Some projects were stagnated and factory buildings were left vacant, resulting in a waste of resources.

He also emphasized that local governments should introduce supporting measures to standardize market order for the development of integrated circuit industry. They should also establish a preventive mechanism, strengthen communication and coordinate with banking institutions and investment funds to reduce investment risk of major integrated circuit projects.

The statement read “the National Development and Reform Commission will focus on guiding local governments to strengthen their understanding on the risks of major project construction.  In accordance with the principle of ‘who supports and holds responsible’, officials causing major losses or triggering major risks will be notified and held accountable.”

The central government will increase its efforts to hold officials responsible for the failure of integrated circuit investment projects. Source:

It is unknown if the purpose of the state owned Wuhan Xingong Technology Development Co., Ltd. and Wuhan Guangliang Lantu Technology Co., Ltd. taking over HSMC and Beijing Guangliang Lantu Technology Co., Ltd. respectively is related to stricter regulatory policies. 

Li Xueyan of  Beijing Guangliang Lantu Technology Co., Ltd., does not appear to have any links to either of the new takeover companies and has since disappeared.

What is the role of the government?

After months of delay in the construction of the manufacturing plant, Dongxihu district government in central province of Hubei took over the semiconductor factory, according to the latest corporate registration records compiled by Tianyancha. 

The firm is now under the control of State Assets Supervision and Administration Commission of the Dongxihu district government in Wuhan.

The local government later established a firm called Wuhan Guangliang Lantu Technology Co., Ltd. in September 2020 to take over Beijing Guangliang Lantu Technology Co., Ltd., holding 90% shares of HSMC.

According to Article 20 of the Company Law of China, if a company shareholder abuses the independent status of the company as a legal person and the limited liability of shareholders, evades debts and seriously damages the interests of the company’s creditors, he or she must bear joint liability for the company’s debts.

Specific content of Article 21 of the Company Law of the People's Republic of China. Source:

In November, Beijing Guangliang Lantu Technology Co., Ltd. ended their investment with HSMC, and Wuhan Xingong Technology Development Co., Ltd., the government-owned firm, took over the share at HSMC.

Since the takeover, Wuhan Xingong Technology Development Co., Ltd., the board members of HSMC have not questioned or investigated the use of the fund they received from the government. The process of takeover was unclear as the local government took over HSMC through a newly established company.

Wuhan Xingong Technology Co., Ltd. paid HSMC 2 billion yuan (HK$ 2.3 billion) as planned capital. Source:

The Chinese government is prepared to invest up to 9.5 trillion yuan (HK$11 trillion) in technology under the 14th Five-Year Plan. This was adopted in October 2020 at the Communist Party’s fifth Plenum. Subsidies will be offered to so-called “third generation” semiconductor firms.

《The Young Reporter》

The Young Reporter (TYR) started as a newspaper in 1969. Today, it is published across multiple media platforms and updated constantly to bring the latest news and analyses to its readers.


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