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How is In-Q-Tel not an illegal state subsidy?

It's an investment fund. China can invest as it wants to.

Industry stradgey exists in every country...It is just because this is China so it is on a much larger scale...

This isn't even bad, lol.

What will happen is that the world will now have more and better semiconductors. Everyone wins.

Why would it be?

Depends on what they charge to lend it. If it's 0% interest, no collateral then that could be seen as a subsidy.

It's an investment, not a loan.