On the face of it, the amount of attention that China’s semiconductor sector is getting seems unwarranted for a sector which typically has low profit margins and high costs. But upon closer look, the logic behind recent investments in the sector- which have come mostly from the government and state-owned companies- may be more strategic. The most recent evidence of this came with news on Tuesday that China’s sovereign wealth fund has invested in state-owned Semiconductor Manufacturing International Corporation (SMIC).

On Tuesday, a Hong Kong-listed SMIC received US $250m from CIC in exchange for 11.6 per cent of SMIC’s outstanding share capital.

Proceeds from this transaction will be used to improve the company’s production capability, said Ke Li, director of semiconductor industry research group from China Semiconductor Industry Association. SMIC, which has a market cap of HK $18.08bn broke even in 2010 after making losses for five years until 2010.