The recent visit to Taiwan by US House Speaker Nancy Pelosi ignited tensions between the US and China and outraged Beijing, but did little to dissuade investors from pouring money into the companies. Chinese semiconductor companies.
On Friday, shares of China’s biggest chip companies surged to the highest since 2020 as investors bet the escalating standoff between China and the US would fuel China’s semiconductor sector.
China’s semiconductor index gained nearly 7% on Friday and 14.2% for the week, the best weekly performance in more than two years. The index’s gains mean it is now at its highest level in four months. Hong Kong-listed Mirae Asset Management’s Semiconductor Exchange-Traded Fund (ETF), a fund that invests in Chinese semiconductor makers, rose 9.5% for the week. The fund is up 19.6% from its 2022 low in early May. Mainland China’s top chip maker, Semiconductor Manufacturing International Corporation (SMIC), advanced 15.8% on the week in Hong Kong.
The growing optimism toward China’s chipmakers comes around the same time the US Congress passed the CHIPS Act, which provides $52 billion for research, development, and construction of chip manufacturing plants (fabs). on American soil. The legislation is a key milestone in the Sino-American showdown for dominance of chips and technology.
Bets on the chip showdown between the USA and China
Investors have interpreted recent events, from Pelosi’s visit to the passage of the CHIPS Act, as big opportunities for China’s semiconductor makers.
“Hong Kong and China chip stocks caught fire overnight,” wrote Brendan Ahern, chief investment officer at KraneShares, a China-focused investment fund, in a note Friday. “These are the consequences of Pelosi’s trip, as there will be a move by China to become self-sufficient in US chips. This is not unlike recent US legislation to boost US chip production. Uh,” he said. China’s local chipmakers will realize “huge opportunities to replace imported products,” said Niu Chunbao, chief investment officer at investment management firm Wanji Asset. Reuters.
The United States also imposed export controls that restrict companies from providing advanced chip technology to certain companies in mainland China. The US has lagged behind Asia in chip manufacturing (its global share is now 12% compared to nearly 40% a few decades ago), but it leads the world in cutting-edge chip design and technology, in the ones trusted by global chipmakers. For example, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest and most valuable chipmaker, stopped providing Chinese telecom giant Huawei with advanced chip technology at Washington’s behest, costing TSMC 30% of your income.
Like other nations, China is spending billions to bolster its chip manufacturing and capacity. But Beijing still imports more than $300 billion worth of semiconductors annually. The country’s ‘Made in China 2025’ plan, released in 2015, outlines its goals to become self-sufficient in advanced technology and produce 70% of its own chips by 2025.
Recent moves by the US, including the passage of the CHIPS Act and Pelosi’s visit to TSMC CEO Mark Liu, could prompt Beijing to provide even more support for its nascent chip sector. Like Vey-Sern Ling, CEO of Union Bancaire PrivThise in Singapore, told Bloomberg: “China’s focus on supporting its domestic semiconductor chip industry should be unwavering going forward, and heightened tensions with the US will only fuel the momentum further.”
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