Three years after it was launched, local authorities confirmed that the Wuhan Hongxin Semiconductor Manufacturing Co Ltd－a project with an alleged investment of 100 billion yuan ($14.67 billion) in Dongxihua district of Wuhan, capital of Hubei province－faces the risk of closure because of a possible collapse of its funds chain.

The project is one of a series of failures after the semiconductor investment bubble burst in recent years. All such projects have two things in common: they all gained local government support and were forced into closure midway because their funds chain broke.

Unlike internet sector projects, semiconductor projects have a very high investment threshold. Therefore, industry insiders call such failed semiconductor projects "swindler companies" that have no chance of registering success.

The shutdown of so many semiconductor projects is to a great extent the fallout of local governments' eagerness to back "big projects" through subsidies and other preferential policies. However, while doing so they have failed to conduct necessary background checks on investors.

Take the Hongxin semiconductor project in Wuhan as an example. Controversies dogged the project from the time of its establishment for its announced investment of 128 billion yuan. Its main investor, a Beijing-based technology company, had no industrial background and threw no light on where its enormous investment would come from. Not surprisingly, a local court sealed the project's land-use rights last year for failing to pay project fees and loans.

The haphazard launch of semiconductor projects by local governments, without respecting the industry laws or rational judgment on funds and technology continuity, has not only led to wastage of funds, but also has had negative impacts on the development of the entire industry. What China lacks most in developing the semiconductor industry is not capital and advanced equipment, but technologies and talent.

The semiconductor sector has a very high threshold for capital, technologies and talents, and cannot rely on common venture capital alone. In the past, it was common for investors to make money illegally from local governments by introducing investment projects, while local governments wanted to introduce such projects to boost their image and attract more funds from higher-level governments. The central government should introduce rules to stop such speculative behavior.

The development of semiconductors depends largely on talents who have the ability to combine technology and management. However, in the current environment, both local governments and enterprises are too utilitarian. As such, they cannot build a conducive environment for the development of the industry. The central government should set necessary thresholds for project investment, especially for projects involving local governments, and carry out necessary qualification reviews of investors to prevent "phishing projects" from being launched.