TRADE OFF BETWEEN CHINA VS USA IN CHIP

TRADE OFF BETWEEN CHINA VS USA IN CHIP

The Chinese government has always generously funded the country’s hi-tech industries, especially when it comes to semiconductors. 

Over the past decade, this funding mostly came via the China Integrated Circuit Industry Investment Fund, aka the “Big Fund”. Established in 2014, its first phase doled out 138.7 billion yuan (US$19 billion) to local chip ventures. A second phase in 2019 saw 204.1 billion yuan in funding become available, while the third phase was launched in May with registered capital of 344 billion yuan which all add to whooping far exceeds the US$52 billion the US government allocated via the CHIPS act.

However, China-based firms now have to solely rely on state money because foreign investment into the country is on the decline, and Washington has restricted American venture capital from going to Chinese semiconductor and AI companies. This trend was evident in figures released this week by JW Insights, a Chinese consultancy and research firm.

In the first 11 months of 2024, China’s chip industry recorded 677 investment deals, a decline of 35.9 per cent year on year. In the same period, total funding fell by 32.4 per cent year on year.

The largest deal by ticket size was a US$1.48 billion funding round announced in March by DRAM maker ChangXin Memory Technologies (CXMT). While some private-sector money was part of that – from Chinese flash memory designer GigaDevice – the other investors were all state-backed entities, including several major Chinese banks.

Washington further tightened restrictions on China’s chip sector this month, imposing export controls on 24 types of chipmaking equipment and three categories of critical software, while adding 140 chip-related Chinese organizations to its trade blacklist. The restrictions are over concerns that US core tech could be used to modernize the Chinese military, 

In response to the  latest curbs, Beijing launched an antitrust probe into US AI chip giant Nvidia.

JW Insights data also showed that in the third quarter of 2024, the US semiconductor market surpassed mainland China to become the world’s largest single market. “The surge in demand for advanced computing chips and high-end memory products – driven by the current artificial intelligence boom – has been hindered by domestic supply chain restrictions in China, while the US has made massive investments in AI infrastructure,” said Han Xiaomin, general manager of JW Insights.

Separately, growth in China’s integrated-circuit (IC) output – a broad measure of semiconductor production – has fallen to single digits for the first time this year, according to figures from the National Bureau of Statistics (NBS) released on Monday.

China’s IC output increased 8.7 per cent year on year to 37.6 billion units in November. However, total IC output for the first 11 months rose 23.1 per cent year on year to 395.3 billion units, according to the NBS. 

IC production in China is buoyed by strong demand from industries such as robotics and electric vehicles. The country’s output volume of industrial robotics surged 29.3 per cent in November from a year earlier, while electric vehicle output expanded 51.1 per cent, the NBS data showed.

Meanwhile, China’s IC exports reached 271.6 billion units in the 11-month period, up 11.4 per cent year on year, according to customs data. The value of these exports reached nearly US$145 billion, up 18.8 per cent from a year earlier, showing continued momentum in the country’s production of so-called legacy chips.

“While [US] restrictions impact advanced processes, the integration of China’s semiconductor supply chain with the global market remains deeply entrenched, and dramatic changes are unlikely in the near term,” JW Insights’ Han said.

 

 

What goes up must come down

 

Several years ago, it seemed like the sky was the limit for Chinese Big Tech firms. They were expanding at a rapid pace, and seemingly had no limits to how much money they were willing to spend. And spend they did, buying up anything that wasn’t nailed down – including a lot of non-tech assets. That ended during the pandemic, and since then, major consolidation has been underway at all China Big Tech firms, with many of those non-core acquisitions now being offloaded.

Alibaba Group Holding, owner of SCMP, is taking a 9.3-billion-yuan (US$1.3 billion) loss in its sale of Intime, one of China’s leading department store operators, as the e-commerce giant walks away from offline retailing to focus on its core businesses.

The company is selling its entire stake in the retail chain, in which it first invested in 2014, to a consortium of purchasers comprising clothing firm Youngor Group and members of Intime’s management team, according to a filing to the Hong Kong stock exchange on Tuesday. 

The deal was valued at around 7.4 billion yuan, less than half of what Alibaba sank into the company. The move marks another key step for the company in retreating from what it had touted as a “new retailing” strategy, which company founder Jack Ma initiated in 2016 as a way for Alibaba to blend its online and offline shopping resources. 

Despite the loss, analysts say it was a good move for the long term. “I believe that a one-time loss may have an impact [on the financial figures], but if we look at every quarter in the future, the deal will contribute positively to revenue and net profit growth,” said Kenny Ng, a strategist at Everbright Securities International.

Since last year, Alibaba has been pushing to restructure its sprawling business empire to refocus on its bread-and-butter revenue drivers of e-commerce and cloud computing. Since the pandemic, it has been grappling with macroeconomic headwinds and heightened market competition, with newer players such as PDD Holdings’ Pinduoduo engaging in aggressive pricing strategies.

The landscape of China’s bricks-and-mortar retailing space has changed significantly in the past decade. The spread of Covid-19 hit the sector especially hard, said Ng. The Intime sale will help Alibaba take an “asset-light” approach in the future, he added.

The e-commerce firm is also in the process of negotiating with potential purchasers of Sun Art Retail Group, the supermarket chain operator it took over in 2020. Earlier this year, Alibaba suspended the operations of Ling Shou Tong, a nine-year-old sourcing platform that helps mom-and-pop shops source their products, citing “business adjustments after prudent consideration”.

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