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With Money, and Waste, China Fights for Chip Independence

“There have been some stunning absurdities that defy logic and common sense,” China Economic Weekly said.

Yet there has also been progress. Two companies, Yangtze Memory Technologies and ChangXin Memory Technologies, are gearing up to put China on the map in memory chips, which store data. Local manufacturers of logic chips, which perform computations, are expanding production, largely for Chinese customers.

Those manufacturers might not have much choice but to serve domestic clients. Some multinational chip makers are starting to think twice about working with Chinese suppliers and partners out of concerns about intellectual property theft, said Randy Abrams, a tech analyst with Credit Suisse.

“International companies are becoming more wary about the I.P. leakage in China,” he said.

Mr. Liu, the start-up founder in Shenzhen, does not deny being motivated by a certain patriotic purpose. Emblazoned atop the website for his company, Tsinghon, is a proud reference to the Mao-era project that produced China’s first atomic bomb, ballistic missile and satellite:

Inherit the Spirit of “Two Bombs, One Satellite”

Be Self-Reliant and Bold in Forging Ahead

Mr. Liu says the sense of national mission does not conflict with his work serving customers and putting out competitive products. He does acknowledge, when he looks at the sky-high valuations for some chip start-ups, that irrationality has crept into the market.

“There is definitely a bubble in China,” he said. “But you can’t overgeneralize.”

The government, he said, is trying to hold local authorities more accountable for bad investments. And the torrent of money might at least persuade more skilled engineers in China to work on chips instead of video games and food delivery apps.

“Something is bound to accumulate, whether it’s equipment, talent or factories, right?” Mr. Liu said. “If not you or the other guy, then it will be someone else who ends up using it. I think this might be the government’s logic.”