The IPO of Chinese chipmakers aims to buck the trend of the slowing world economy. But China’s chipmakers are already facing a number of problems. One of these is the crackdown on graft, which is rattling the entire semiconductor industry. So, what does this IPO mean? Here are some things to consider.
Hygon Information Technology is due to open books on Aug. 3 for its IPO. The company designs and manufactures microprocessors. The company expects to raise 10.8 billion RMB through the IPO, making it the biggest offering on the STAR in 2022. In addition, it plans to sell around 7% of its enlarged capital in a stock offering.
China is betting big on its chip sector. Beijing is laying claim to a US$150 billion investment by 2030. Meanwhile, the Chinese government has been splurging on industrial subsidies. In 2020, the central government spent 10.6 billion RMB on 113 companies that produce semiconductors. Beijing is also exempting chip designers and manufacturers from corporate income tax for the first two years after they turn a profit.
Meanwhile, the Chinese government is stepping up scrutiny of the chip industry as a way to boost the country’s chip exports. However, a number of top executives have been arrested for alleged fraud. Five former directors of the Big Fund are under investigation by the CCDI. The CCDI has also detained the former head of SINO IC Capital, which was part of the partnership between the two firms. Further, a number of other executives linked to the Big Fund are under investigation.
As the world’s top chip makers begin to make the switch to a lower-cost manufacturing process, the Chinese chip industry has been under pressure. In the past year alone, a record amount of power has been consumed in Shenzhen, suggesting that the country is on the right track. However, the Chinese chip industry faces a number of challenges in the coming years. In addition, the Chinese government plans to impose new sanctions on Russian banks and state bonds, which could affect the chip industry. While the EU is looking to support the computer chip industry, the Chinese government has been struggling to maintain the Shanghai supply chain.
In February, the UK’s automotive industry shrank 41.3%, a result of a shortage of chip materials. Meanwhile, Intel’s CEO threatens to expand in Europe over the U.S. if Congress does not act. Meanwhile, Taiwan’s semiconductor firms refuse to build new plants in the U.S. Until Congress takes action, Intel and its partners continue to delay new projects in the U.S.
The IPO of SMIC is a bet on double self-sufficiencies on the market. While it hasn’t shifted manufacturing to the US, it has been moving from China to the US market. A recent US trade ban has made it more difficult to sell EDA tools to Chinese customers. Furthermore, China’s chip industry is increasingly relying on its foreign suppliers. Its trade sanctions and EUV machines have been placed on its radar.
