Charts of the Day: STAR Market Powers Up China’s Microchip Sector
Investment in China’s microchip sector went into overdrive last year, as Beijing’s desire to develop a vibrant homegrown industry converged with the rapid rise of the country’s new Nasdaq-style STAR Market that was hungry for sexy new high-tech listings.
The confluence saw semiconductor investments soar to 140 billion yuan ($22 billion) last year, more than quadruple the 30 billion yuan for 2019, according to a new report published this week by Winsoul Capital. The number of major deals for the year also jumped sharply to 413, which was roughly double the 211 deals for 2019, the report said.
“A key factor promoting the increase in total investments was the prosperity of the STAR Market, which has given many venture capital funds a better investment exit channel, and made them more willing to invest in biotech, high-end semiconductor equipment and new materials,” the report said. “You could say the board is currently leading primary market investment capital out of a cold winter.”
China is the world’s biggest manufacturing ground for many gadgets and appliances, most of which are powered by an array of microchips that serve as both their brains and memories. Despite that, China must import the majority of those chips — mostly from the U.S. and some Asian and European countries — due to its own lack of sophisticated design and manufacturing capability.
The nation first began to build up the sector early in the second decade of the 21st century by setting up government-backed funds to support the campaign. That drive has gained increasing urgency over the last year and a half as a growing U.S. campaign seeks to stymie China’s development by cutting off many of the country’s biggest tech companies’ access to the most advanced microchips.
At the same time, funding for the space has gotten a major lift over the past year and a half following the launch of Shanghai’s STAR Market, which aims to copy the Nasdaq by nurturing China’s tech giants of the future. To that end, the STAR Market has generally looser listing requirements, including a market-oriented registration system to replace China’s traditional more intensive review process.
Equally important, the new market breaks with China’s older markets by not requiring profitability to list, allowing for IPOs by earlier stage companies that may still be losing money despite their fast-growth.
Following the market’s July 2019 launch, the number of semiconductor IPOs in China went from none in 2018 to 18 in 2019 and 32 last year, according to the Winsoul Capital report. Those included the STAR Market’s biggest deal of the year, a listing by leading microchip maker Semiconductor International Manufacturing Corp. (SMIC) that raised more than 46 billion yuan. SMIC shares now trade at more than double their STAR Market IPO price, reflecting similar strong gains by many semiconductor companies to list on the new exchange last year.
Contact reporter Yang Ge (email@example.com) and editor Joshua Dummer (firstname.lastname@example.org)
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