It has been a volatile few months for Chinese markets. Beijing has cracked down on a host of different industries providing one regulatory shock after another for investors.
But while many companies, such as fintech and tech companies, have been hit hard by regulatory intervention, other companies, such as semiconductor companies, have thrived.
China’s war on tech and firms
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From big tech firms to e-commerce and education, China has increased scrutiny on multiple sectors.
Most recently, China released an article likening the video games industry to “the opium of drugs”. Shares in major video companies such as Tencent fell, prompting Tencent to introduce emergency measures such as introducing curbs on how long minors can play its “Honour of Kings” game. Video game hours for holiday periods were slashed from 1.5 hours to one hour, among other restrictions.
In July, Chinese regulators sparked a sell-off in both education companies and tech companies after a leaked memo proposed radical changes to the country’s $100bn private-education sector, including banning companies from accepting foreign investments, from being acquired, from raising funds via the stockmarket, and from providing tutoring services at weekends and on public holidays.
And the Cyberspace Administration of China (CAC) launched a cybersecurity review into Didi Chuxing dubbed “China’s Uber” – at the start of July to investigate allegations of poor working conditions just days after the firm listed through a $4.4bn IPO in New York.
So why semiconductors?
The Chinese semiconductor industry, meanwhile, has been helped by a multibillion dollar government plan by China, mainly to prevent competition from American firms, reports the Financial Times.
This is backed by a 446% rise in venture capital investment in Chinese semiconductor companies in the second quarter of the year to $8.9bn, says Prequin, an alternative-finance analytics firm.
China is aiming to have 70% of its semiconductors manufactured at home by 2025, a 30% rise from current levels.
“For China, the most important areas of technology include semiconductors, aviation and life sciences. When President Xi talks about the importance of technology, he has expressly elevated the manufacturing industry over digital goods,” Dan Wang, technology analyst at Gavekal Dragenomics, told the FT.
But while semiconductors have seen greater investment, investment in fintechs fell by 36% to $360m quarter-on-quarter. Investments in gaming companies fell by 96% to $21m, while e-commerce companies saw a drop of 54% to $4bn.
The semiconductor shortage looks set to continue well into 2022
The world is running very short on the supply of semiconductors, which are used in the manufacture of countless products. But demand has been outstripping supply; the Covid pandemic initially caused a drop in production for many industries, but drove demand for goods that thrived in a stay-at-home economy.
The shortage was made worse by a resurgence in Covid cases in the last couple of months in Asia casting further doubt on global supply chains.
With the shortage of chips likely to continue in 2022, it is hard to see the share prices of semiconductor companies falling in the next few months.
As Bloomberg puts it: “Global semiconductor-supply tightness, especially in mature-node chips, looks likely to extend to 2022. This would allow another round of price increases in 2H21.”
But with Chinese regulators as unpredictable as ever, there’s always the chance they will make a U-turn on some of their policies, and investors may flock back to the big Chinese tech and fintech names they are currently shying away from.
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