The move comes at a time when most venture capitalists are scaling back investments in U.S. based chip startups. But so far results have been lackluster for China's fabless companies due to narrow product portfolios and a shortfall of seasoned managers.

Government planners have earmarked a slice of the estimated $586 million China economic stimulus package announced late last year as a source of funds for grants, loans and equipment for fabless startups. They are working with industry executives to define target markets and attract venture capital funds.

"I'm in the middle of that helping to organize it," said Lip-Bu Tan, chairman of venture capital firm Walden International which claims it is the largest investor in China's semiconductor industry after Intel Capital.

Venture capitalist Lip-Bu Tan

Tan is also chief executive of Cadence Design Systems which hopes to provide EDA tools to the new chip companies. The startups, in turn, will serve China's growing ranks of electronics systems companies ranging from HuaWei and ZTE in communications to Lenovo in computers and Konka and TCL in consumer electronics.

"The main attraction is the China market is so big, and they need the semiconductors to serve the market," Tan said. "China is a leading consumer of electronic components now, so now is the time to build the fabless companies," he added.

Indeed, China's IC market is expected to grow to $100.1 billion in 2013, when it will represent 35 percent of the global chip market, according to a recent report from market research firm IC Insights (Scottsdale, Ariz.). China's 12 percent growth rate will be twice that of the global chip market, the market watcher said.

To take advantage of that market growth, China hopes to follow the example of Taiwan. Three of Taiwan's fabless startups have become billion-dollar companies, lead by MediaTek, the fifth largest fabless semiconductor company in the current rankings of IC Insights.