Semiconductor update

Investors are pouring into Chinese chip, software, and biotechnology groups at a record rate while cutting their bets on e-commerce as they try to align with Beijing’s policy priorities and avoid expanding regulatory crackdowns.

Chinese President Xi Jinping led a regulatory attack on Internet platforms this year, cracking down on food delivery, e-commerce, financial technology, gaming and educate.

However, the Chinese Communist Party’s desire to promote high-end manufacturing and other technologies has promoted the development of other companies.

China’s semiconductor industry is supported by a multi-billion dollar government program, partly to counter the US determination to stifle its technology industry. Beijing hopes that by 2025, 70% of China’s semiconductors will be produced domestically, compared with one-third of the current amount.

According to data from Preqin, the value of venture capital investment in Chinese semiconductor companies in the second quarter increased by 446% over the first quarter, reaching a record $8.9 billion. In a transaction, the Chinese manufacturing group BYD Semiconductor raised RMB 1.9 billion (US$293 million) in Series A financing from investors including Sequoia China in May.

“For China, the most important technical fields include semiconductors, aviation and life sciences. When President Xi talked about the importance of technology, he clearly raised the manufacturing industry above digital products,” Longzhou Jingxun based in Shanghai Technical analyst Wang Dan said.

Beijing also encourages investment in artificial intelligence. Autonomous driving startup WeRide raised $310 million from investors including the Renault-Nissan-Mitsubishi alliance in June.

In contrast, according to Preqin’s data, investment in Chinese fintech companies in the second quarter fell by 36% compared with the previous quarter to 360 million U.S. dollars. Since regulators cancelled the $37 billion initial public offering, the industry has been hit. Ma Yun’s ant colony At the last minute of November.

At the same time, investment in gaming and e-commerce companies in the second quarter fell by 96% and 54%, respectively, to US$121 million and US$4 billion.Groups operating in these spaces, such as Tencent and Meituan, This year has also become the target of Chinese regulators.

The co-founders of a large Silicon Valley venture capital firm and a large Chinese fund said the company still plans to invest in the country, but only in biotechnology, software and other industries deemed “safe.”

According to data from another data provider, Refinitiv, there were 74 financing transactions in the chip field in the second quarter and 133 financing transactions for software companies. In contrast, there are only 42 e-commerce companies.

The line chart of China's technology stock index shows that as the crackdown increases, investors are turning to policy-supported technology stocks

On the open market, Chinese Internet companies have also been hit in recent weeks. The Nasdaq Golden Dragon Index, which tracks large U.S.-listed Chinese stocks such as Alibaba and Baidu, has fallen 23% since early July.

Instead, investors bought shares in electric vehicle (EV) manufacturers, renewable energy companies, and other areas designated by Beijing as a priority for development.

The Shanghai Star 50 Index, which tracks companies in this type of industry, rose 14% in 2021.

The share prices of chip makers such as electric car makers BYD and Geely and Tianjin Zhonghuan Semiconductor have soared this year.

“Investors… want to enter the fields of electric vehicles and batteries as a safe haven,” said Louis Tse, managing director of Hong Kong brokerage Wealthy Securities. “Where else can the money go? It applies to stocks supported by national policies.”


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