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THIS WEEK:

High-stakes semiconductor investment, China’s historic lunar landing, cash rewards for information about cults, new BRI railway deal, and Xi highlights need for "new quality productive forces." 

1. High-Stakes Semiconductor Investment, Round 3

What Happened: China rolled out the third phase of its National Integrated Circuit Industry Investment Fund, or “Big Fund 3.0,” with a hefty investment of 344 billion yuan ($47.5 billion).

The Evolution of Big Funds: In 2014, Big Fund 1.0 set the stage by targeting manufacturing, design, packaging, testing, and equipment, but governance woes and corruption scandals highlighted the need for tighter oversight. In 2019, Big Fund 2.0 focused on specialized segments like etching machines and materials. This phase faced significant hurdles from U.S. sanctions and further corruption issues.

Third Time’s a Charm: Big Fund 3.0 zeroes in on critical issues in advanced chip technologies for AI, aiming to close the gap with global leaders and counteract sanctions and export controls. The leadership shift, with Zhang Xin at its helm, aims to align investments with Beijing’s long-term goals, emphasizing long-term growth over quick returns. Instead of bolstering specific companies, the fund focuses on strengthening the domestic ecosystem by investing across the entire integrated circuit industry.

Why It Matters: The fund further strengthens the mature chip sector and significantly impacts global markets. Further cost reductions and capacity expansions could lead to global oversupply and price pressures. Big Fund 3.0 carries substantial political weight, and its success or failure will critically impact the credibility of Xi Jinping’s economic agenda.

By Lizzi C. Lee, Fellow on Chinese Economy, Center for China Analysis

Learn More: Lizzi engaged leading experts on the technological, economic, and security elements of AI to determine the Implications of China’s AI Strategy.

2. China’s Historic Lunar Landing

What Happened: Last Sunday, China successfully landed an uncrewed spacecraft tasked with collecting rock and soil samples to bring back to Earth on the far side of the moon. 

The Dark Side of the Moon: The probe, Chang’e-6, landed in a sizable crater called the South Pole–Aitken basin, where it collected almost 2 kilograms worth of specimens from the moon’s oldest impact basin. On Tuesday, Chang’e-6 successfully lifted off from the moon’s surface to commence its three-week journey back to Earth. This marks the first time in history that a spacecraft has successfully lifted off from the far side of the moon.

The Bigger Picture: The mission is the sixth in the Chang’e moon exploration program and the second to bring back samples. The program fits into China’s larger endeavors to advance space exploration and put a person on the moon before 2030.

Why It Matters: China’s latest achievement as the first country to land on the far side of the moon reinforces its space exploration strengths and capabilities. Despite an ongoing space race with the United States, China’s collaboration with the European Space Agency on the Chang’e-6 mission highlights the potential for cooperation, not competition. 

By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis

Learn More: Read about how Beijing’s Tech Restructuring Signals Enhanced Competition with the United States by Patrick Beyrer, Research Associate, Center for China Analysis.

3. Cash Rewards for Information about Cults

What Happened: Guangdong’s Public Security Bureau extended its offer to pay informants up to $14,000 for reporting criminal activities involving cults. The reward program is part of a wide-reaching campaign to crack down on cult-like scams and unsanctioned religious practices.

Crime Watch: Amid an epidemic of telecommunications fraud, China has also seen an upsurge in crimes involving fake clerics and self-proclaimed spiritual masters. These fraudsters prey on the spiritual malaise inspired by discontent with China’s highly competitive, materialist society, limited economic prospects, and deteriorating social ties.

Anti-Cult Campaign Intensifies: China has stepped up its propaganda warning citizens about the dangers of cults, taking the campaign into the streets, schools, and shopping malls. Carrying out “anti-cult work” is now part of the work plans of government departments and party organs from the national level all the way down to village offices.

Why It Matters: With more people in China turning to spirituality to find meaning and fulfillment — and more entrepreneurial criminals looking to take advantage of them — Beijing is increasingly concerned about religious activity it sees as a threat to its authority and public order. Yet by blocking potentially legitimate channels for spiritual experience, its heavy-handed crackdown may risk creating further discontent rather than stemming its rise.

By G.A. Donovan, Fellow on Chinese Political Economy and Society, Center for China Analysis

Learn More: Check out G.A.’s paper on Beijing’s Struggle to Control Religious Ferment, part of a new CCA initiative examining the surge of interest in spirituality in China.

4. China Finally Seals Railway Deal with Kyrgyzstan and Uzbekistan

What Happened: The trilateral government agreement for the China-Kyrgyzstan-Uzbekistan (CKU) railway project was formally sealed in Beijing on Thursday. The landmark accord not only signifies a crucial advancement for the Belt and Road Initiative (BRI) but also establishes a robust legal framework for the project’s long-awaited construction, dispelling previous uncertainties surrounding its implementation.

The Silk Road: The CKU railway starts at Kashgar Station on the Southern Xinjiang Railway in China, passes through Kyrgyzstan, and terminates at Andijan Station in Uzbekistan. Once completed, it will facilitate China’s goods transportation to Eastern Europe and the Middle East, becoming one of the shortest routes for Chinese goods to reach Europe.

A Long Time Coming: The CKU railway project, initially proposed in 1997 and later incorporated into Xi’s BRI initiative in 2012, has encountered numerous hurdles. Despite all three countries’ substantial political investments in the project, delays ensued due to persistent disagreements and fluctuating political dynamics, particularly in Kyrgyzstan.

Why It Matters: Notably, one major impediment to the CKU project’s progress has been Russia’s historical reservations, with Putin once pressuring Kyrgyzstan to delay construction due to concerns about China’s expanding influence in Central Asia. However, amidst Moscow’s shifting geopolitical priorities surrounding heightened tensions with the West over Ukraine, Putin may need to make greater compromises in his relationship with Beijing.

By Jie Gao, Research Associate on Foreign Policy and National Security, Center for China Analysis

Learn More: ASPI Australia Research Associate Genevieve Donnellon-May co-authored an article that covered some of the geopolitics concerning the rail link’s construction.

5. Xi Highlights Need for “New Quality Productive Forces”

What Happened: On May 31, the Communist Party’s top theoretical journal, Quishi, published the speech that General Secretary Xi Jinping delivered at a Politburo study session on January 31 focusing on “new quality productive forces.”

Big Problems: The speech included content absent from the official readout of the study sessions, including a section where Xi discussed the “large number of factors” that he sees constraining his economic agenda for “high-quality development.”

Problems Abroad, Problems at Home: The first two problems that Xi identified were “great changes unseen in a century accelerating in all directions” and “some key core technologies being controlled by others,” suggesting a rising concern about U.S.-led pushback against China’s geopolitical position and economic model. The latter two problems that he discussed were “disparities in urban-rural development, regional development, and income distribution” and Party cadres with “inadequate understanding,” “old-fashioned concepts,” and “insufficient ability.”

Why It Matters: Politicians highlight the problems that they want to address. Xi’s remarks suggest that the Third Plenum next month will focus on structural reforms that strengthen indigenous innovation, promote a unified national market, and enhance internal discipline for Party cadres.

By Neil Thomas, Fellow on Chinese Politics, Center for China Analysis

Learn More: For more on economic headwinds, take a look at China’s Economy Ahead of the Third Plenum: The End of the “China Miracle”? by Bert Hofman, Honorary Senior Fellow on Chinese Economy, Center for China Analysis.