China’s semiconductor ambition just had its first ponzi scheme fully exposed: Wuhan Hongxin Semiconductor Manufacturing (HSMC).

The HSMC ponzi scheme was led by a trio of characters, who have zero expertise in semiconductor (or anything tech related), but are experts in manipulating local government subsidies, construction contractors, a renowned but gullible former TSMC executive, and China’s desperate need for homegrown chips to pull of a heist so large it makes Theranos look amateur.

Details of this scheme, documented and exposed in this 36Kr article (in Chinese; hat tip: Jordan Schneider), illuminates a bigger structural problem in China, where the central government’s desires, and the local governments’ desire to satisfy those desires, can produce to ripe opportunities to scammers to steal and profit on a monumental scale.

(Note: during the course of writing this article this week, the 36Kr report was deleted.)

The Heist

Let’s first summarize the major elements of the HSMC heist that unfolded between late 2017 and early 2021 (which may read like a movie script, not real life):

Part I -- the Trap:

  • Throughout 2017, a man by the name of Cao Shan traveled across China looking for a local government to invest in his semiconductor scheme. (“Cao Shan” is actually a fake name this person uses, because his real name is already tainted by the scams he used to do back in his hometown.)
  • Cao eventually found an accomplice, Mr. Long Wei, who worked his connections to get the City of Wuhan’s East-West Lake District Government to provide land and investment.
  • Long brought another close friend into the fold: Ms. Li Xueyan, a small business owner who has opened restaurants and sold Chinese rice liquor.
  • The trio -- Cao, Long, Li -- formed the board of directors of what became HSMC.

Part II -- the Money:

  • Throughout 2018, the trio worked to secure two sources of “income”: direct subsidies from the East-West Lake District Government (aka taxpayer money) and deposits from construction contractors who want to build the HSMC factory.
  • Sourcing both government subsidies and contractor deposits is a strategy for scam factory projects to increase the amount of money to be scammed.
  • The East-West Lake District Government decided to invest in HSMC partly because of its jealousy of a local rival district, which attracted and incubated a successful flash storage manufacturer.
  • To make themselves look important and powerful, the trio would spread false rumors about their personal background. Long was rumored to be the grandson of some high-level official, while Li would pretend to be the sister of some other political figure.
  • By May 2019, HSMC has received 6.5 billion RMB (~$1 billion USD) of investment from the district government. Cao and Long have quit the board, giving Li and her cronies full control. Cao began going to other provinces to set up similar ponzi schemes.

Part III -- Chiang Shang-Yi, TSMC, and ASML:

  • By June 2019, the trio targeted and successfully persuaded Chiang Shang-Yi, the legendary founding CTO of TSMC, to join HSMC as its CEO.
  • To convince Chiang, HSMC spread false rumors publicly that it has already attracted 100 billion RMB (~$15 billion USD) of investments. They also took advantage of Chiang’s gullibility and professional insecurities. (At the time, Chiang was a consultant at SMIC, China’s largest chip foundry, with relatively little influence.)
  • Using Chiang’s aura, HSMC started aggressively poaching engineers from TSMC with salary packages worth 2 to 2.5x more than what they were earning.
  • Chiang also used his industry reputation to convince ASML, the Dutch company and world’s leading manufacturer of lithography equipment, to sell one DUV equipment to HSMC. (DUV is not the most advanced equipment, but this is still a huge coup given heavy US pressure at the time on the Dutch government to not sell to China.)
  • By December 2019, the ASML equipment was delivered to HSMC amidst huge fanfare. The company also secured more investment due to this accomplishment from the district government, totaling 15.3 billion RMB (~$2.4 billion USD).
  • One month later, the same equipment was offered as collateral to a local Wuhan commercial bank for a 580 million RMB loan (~$90 million USD) -- another new source of “income” for the heist.

Part IV -- HSMC Collapses, Heist Completed:

  • During the first half of 2020, while Wuhan was ravaged by the coronavirus, the trio began siphoning HSMC money away.
  • One of its primary methods was conducting employee training programs with a company run by Li’s younger brother.
  • HSMC also refused to pay its construction contractors money, owing tens of millions of dollars.
  • By July 2020, it became clear that HSMC was a scam. Chiang left the company. The Wuhan city government started leaking news that HSMC is running out of money.
  • By November 2020, Li was pushed out of the company and the East-West Lake District Government took full ownership of HSMC.
  • By January 2021, Chiang rejoined SMIC. HSMC furloughed all its employees for 40 days and reduced salaries across the board.

This is a timeline (in Chinese) of the major events put together by the 36Kr team:

Central and Local

While the HSMC saga may read like a movie script and an isolated incident, it’s a symptom of a structural problem. This symptom is amplified by the high-profile nature of China’s need to produce its own semiconductors.

From the outside, a common stereotype and myth about China is that Beijing’s central government is omnipresent and omnipotent. In reality, the dynamic is more of a call-and-response; the central government calls with directives, local governments respond with implementation plans.

I described the importance of understanding this dynamic last year in Part II of my “Open Source in China” series. I emphasized the role that provincial governments play in aligning and allocating resources according to the central government’s desires, in order to compete for star projects and build new companies. Local officials are motivated to deliver results for political advancement.

In a recent piece by Matt Sheehan of the think tank MarcoPolo, he also illustrated this relationship when analyzing China’s plans around “5G+ Industrial Internet.” Four months after the central government issued its “5G+ Industrial Internet” guidance, the Guangdong provincial government issued its implementation plan, and the city of Huizhou in the Guangdong province soon issued its own plan to align with the provincial government’s plan. What tangibly resulted was Guangdong (the province) offering a 30% public cloud discount to push businesses to move to the cloud, while Huizhou (the city) pledging 100 million yuan (~$14 million USD) in subsidies to attract so-called “intelligent manufacturing projects” to set up shop there.

HSMC is the archetypal child of this system -- a new shiny company with a rockstar legendary CEO that would’ve done wonders for the political future of officials in Wuhan and the East-West Lake District, if it had succeeded. The allure was so strong that no one from the district government bothered to scrutinize the outlandish promise that Cao pitched -- HSMC will start producing 14nm chips right away, then quickly advance to 7nm chips and compete directly with TSMC and Samsung. (A more realistic timeline would be to start with 65nm chips, move to 40nm, and then progressively to denser chips; a process that could take at least a decade.) Cao knew nothing about semiconductor production, but he did know that the smaller the chip, the more advanced it is, and the more investment he could scam by promising it.

Herein lies a more vexing problem.

The same reasons that make semiconductor manufacturing hard also make it easy to scam. Few people have the knowledge to oversee and pinpoint why a project failed, which party should be responsible, and how to prevent similar failures. This ignorance extends all the way to the top. When the National Development and Reform Commission, the central government regulator, learned of HSMC’s failing, its official response was “谁支持,谁负责” (whoever supported the project is responsible). There’s not much more it could do.

Furthermore, such a failure in the high-profiled semiconductor space is so embarrassing publicly for the local government that there’s no incentive to litigate the truth, because an honest investigation would inevitably uncover gross incompetence by local officials. As a case in point, according to 36Kr’s report (now deleted), after the district government took over ownership of HSMC, it did not spend time inspecting wrongdoings, but instead traveled to Shanghai and other places to try to sell what remains of HSMC to salvage this failed investment (so far without any success).

For professional scammers like Cao, Long, and Li, semiconductor projects are ripe targets -- low risk, high reward, too complicated for most people to understand, and too embarrassing to investigate if projects fail.

That’s why Cao, instead of sitting in jail, has formed several other “semiconductor factory projects” in cities like Jinan and Zhuhai. He is still out there, trying to replicate other HSMC’s.

Shooting Yourself in the Foot

Last October, I wrote a column “What Can $1.4 Trillion Buy” for The Wire China, where I identified the two main chokepoints to China’s semiconductor ambition: access to advanced equipment, hiring technical talent. The greed of the “HSMC trio” has managed to shoot China in the foot in both areas, permanently damaging the prospect of other semiconductor upstarts that may actually be trying to make chips.

Regarding advanced equipment access, by luring Chiang and using his reputation to buy ASML’s DUV equipment (only to loan it off for more cash), ASML may never sell to another Chinese semiconductor startup, with or without sanctions. ASML’s reputation is damaged by this transaction. It doesn’t sell to any company that has the money to buy; it evaluates the buyer’s technical capabilities first to make sure the buyer can make proper use of its product. ASML toured HSMC prior to agreeing to sell its equipment, and lauded HSMC’s team as the best it has seen in Mainland China, mostly on the strength of Chiang’s reputation and the engineers he was able to attract. ASML now must feel like a fool. But the bigger fool here is China. ASML had a record 2020, selling 258 lithography equipment, primarily to TSMC. ASML doesn’t need the Mainland China market; China urgently needs ASML’s products.

Regarding hiring technical talent, a chilling effect will permeate the industry, where experienced engineers from Taiwan will think twice about joining a mainland startup, since even the reputation and judgment of Chiang cannot protect you from scam artists. This situation cuts off the best and most obvious source of talent, given the cultural and language similarities between Mainland China and Taiwan. Poaching talent from South Korea and the United States would be much harder. And training domestic talent will take much (much) longer.

HSMC isn’t the only semiconductor startup that failed in 2020. Last May, a startup in Chengdu failed after two years of operation and supposedly attracted $10 billion USD in investment. Last July, another startup based in Nanjing filed for bankruptcy after four years of operation, with a supposed investment size of $3 billion USD. We don’t know yet why these startups failed.

And that’s the key question: why?

According to a report from Caixin (in Chinese), in just the last three years, the number of semiconductor startups in China have increased by more than 50%. Moreover, the amount of investment has increased 6-times, from $946 million USD in 2018 to $6.16 billion USD in 2019. For the first half of 2020, investment has reached $8.46 billion USD.


Undoubtedly, not all of these investors know what they are investing in; most of them don’t. Similarly, not all of these startups will succeed; most of them won’t.

Failures are inevitable for something as hard as semiconductor manufacturing. Learning about why failures happen is an important necessity to a new industry’s growth and maturity. But what did China’s fledgling semiconductor industry learn from the HSMC experience?

Based on 36Kr’s calculation, the “HSMC trio” stole in total 12.4 billion RMB (~$2 billion USD) in three years from the three-course meal of district government investment, contractor deposits, and bank loans. (In comparison, Theranos evaporated roughly $1.4 billion USD of its gullible investors’ money in about 15 years.)

The HSMC heist has managed to make Theranos look somewhat benign. If HSMC isn’t treated as a criminal act (like Theranos) but as just another failed startup in a frothy market, it will likely not be China’s only “semiconductor Theranos.”

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中国的 "半导体Theranos":弘芯







第一步 -- 下套:

  • 2017年,一个叫曹山的人全中国到处跑,寻找地方政府投资他想下的“半导体套”。("曹山"都是不是这个人的真名,是用来行骗的假名,因为他的真名已经被以前在老家做的各种骗局而玷污了)。
  • 曹山最终找到了一位叫龙伟的帮凶,他动用关系,说服了武汉市东西湖区政府提供土地和投资。
  • 龙伟又把另一位好友也拉进局,李雪艳。她的创业履历是:开过餐馆、卖过烈酒和其他小生意。
  • 这三人 -- 曹、龙、李 -- 组成了弘芯的董事会。

第二步 -- 圈钱:

  • 2018一整年,“三人帮” 圈了两种 "收入"来源:东西湖区政府的补贴和投资(也就是纳税人的钱)和建造弘芯工厂的承包商的押金。
  • 政府补贴和承包商押金 “两边吃”,是做工厂项目欺诈行为的一套策略。
  • 东西湖区政府决定投资弘芯,部分原因是嫉妒当地另一个区成功吸引并孵化的一家Flash存储芯片制造厂。
  • 为了夸大自己的影响力和神秘感,“三人帮” 故意散布关于个人背景的虚假谣言。龙某被传是某高官的孙子,而李某则假装是某政治人物的妹妹。
  • 2019年5月,弘芯已获得区政府65亿元人民币(约合10亿美元)的投资。曹、龙退出了董事会,控制权完全让给李和她的亲信们。曹开始到其他省份设立类似的“芯片骗局”。

第三步 -- 蒋尚义、台积电、ASML:

  • 到了2019年6月,“三人帮” 成功说服了台积电的传奇创始CTO,蒋尚义,加入弘芯担任CEO。
  • 为了说服蒋,弘芯公开散布谣言,称已经吸引了1000亿人民币(约150亿美元)的投资。他们还利用了蒋的轻信和对自己职业状况的不满。(当时,蒋是中芯国际的一位资深顾问,但没什么影响力。)
  • 利用蒋的光环,弘芯开始积极从台积电挖工程师,薪资待遇比他们的收入高出2到2.5倍。
  • 蒋还利用自己在业界的名声,说服荷兰的ASML(全球领先的光刻设备制造商),向弘芯出售一台DUV设备。(DUV并不是最先进的设备,但考虑到当时美国对荷兰政府施压,要求不要卖产品给中国,能搞到一台DUV还是非常不易的。)
  • 到了2019年12月,ASML设备隆重的交付给弘芯,公司也因此获得了区政府更多的投资,总额达153亿人民币(约24亿美元)。
  • 一个月后,同一台设备被抵押给武汉当地的一家商业银行,拿到5.8亿元人民币(约合9000万美元)的贷款,变成了“三人帮”一条新的 "收入" 来源。

第四步 -- 弘芯崩垮,盗窃完成:

  • 2020年上半年,在武汉被疫情肆虐的同时,“三人帮” 开始从弘芯的账户中套钱。其主要手段之一是与李某的弟弟开的公司合作做大量的员工培训。弘芯还拒绝支付给承包商钱,欠下数千万美元。
  • 到2020年7月,很明显,弘芯是个骗局。蒋离开了公司。武汉市政府开始泄露弘芯缺钱的消息。
  • 到2020年11月,李某被赶出公司,东西湖区政府全面接管弘芯。
  • 到2021年1月,蒋重新加入中芯国际。弘芯将给所有员工放40天大假,全面降薪。





去年,我在 "中国的开源世界" 系列文章第二部中描述了需要理解这层关系的重要性。我强调省级政府在跟随中央的意愿时,调整和分配资源所扮演的角色,从争夺明星项目,创建新企业,到落实出成果。这都是地方官员为了升官而积累业绩的重要环节。

在智库MarcoPolo的Matt Sheehan最近的一篇分析中国 "5G+工业互联网" 计划的文章中也讨论到这一点。在中央政府发布 "5G+工业互联网" 指导意见四个月后,广东省政府就发布了实施方案,而广东省惠州市也很快发布了自己的落实计划,响应省政府。最终的结果是,广东省提供30%的公有云优惠,以推动企业上云,而惠州市则承诺提供1亿元人民币(约1400万美元)的补贴,以吸引所谓的 "智能制造项目" 去当地落户。

弘芯其实是这一体系的典型 “产品” -- 一家新新闪亮的公司,配上一位有传奇色彩的CEO,如果成功了,将为武汉和东西湖区大小官员赢下显赫的政绩,保证今后步步高升。诱惑力如此之大,以至于区政府没有人去仔细审视曹某说出的与行业现实完全脱钩的承诺:弘芯一开始就生产14nm芯片,然后迅速推进到7nm,直接与台积电和三星竞争。(更现实的时间表是,从65nm芯片开始做,然后升级到40nm,逐步向更高密度的芯片发展;整个过程一般至少需要十年时间。) 曹某虽然对半导体生产一窍不通,但他知道,芯片越小,越先进,他能骗取的投资就越多。


制造半导体背后难的原因,同时也是它容易变成欺诈目标的缘由。很少有人足够的专业知识来监督和审视一个项目为什么失败,应该哪一方负责,以及如何防止未来类似的失败。这种“无知”一直延伸到最高层。当国家发改委得知弘芯的各种问题时,官方姿态仅是 "谁支持,谁负责"。最高监管也做不了什么。


对于曹、龙、李这样的职业骗子来说,半导体项目非常有吸引力 -- 风险低、回报高,对大多数人来说太复杂,无法理解,失败了也不好意思去调查。



去年10月,我曾为The Wire China写过一篇专栏《1.4万亿美元能买到什么》(英文),其中指出了站在中国半导体雄心壮志前面的两大障碍:获得先进设备,招聘技术人才。弘芯 “三人帮” 的贪婪成功地在这两方面砸了中国自己的脚,永久地损害了其他可能真正在努力尝试制造芯片的半导体创业公司的前景。









根据36氪的计算,弘芯 “三人帮” 在三年内从区政府的投资、承包商的押金和银行贷款这三道大餐中共窃取了124亿人民币(约合20亿美元)。再看看Theranos,它在15年左右烧掉了大约14亿美元投资。

弘芯这个“套”somehow把Theranos变得看起来也没那么可恶。如果弘芯一案不被当作犯罪行为处理(像Theranos一样),而之当作泡沫中又一家失败的创业公司,那它很可能不会是中国唯一的 "半导体Theranos"。