Datang Holdings is a subsidiary of Datang Telecom Industry & Technology Group, the company that holds much of the intellectual property related to TD-SCDMA (Time Division Synchronous Code Division Multiple Access), China's homegrown 3G (third-generation) mobile standard.

Datang Holdings will invest US$172 million for a 16.6 percent stake in SMIC, making the company SMIC's largest shareholder, the chip maker said Tuesday.

The cash infusion will allow SMIC to repay loans that come due next year, and the chip maker is betting that an expected uptick in demand for TD-SCDMA chips will bring in more business.

"This partnership will enhance China's 3G technology and enhance its deployment," said Richard Chang, SMIC's president and CEO, during a conference call with analysts to discuss the deal.

"By 2010 or so, no later than 2015 or 2016, we expect the penetration rate of TD-SCDMA in China will be around 10 percent, which will be a big market," Chang said, adding SMIC expects to see TD-SCDMA orders start to pour in during late 2009. "That's a very good opportunity for both companies."