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Investors are cramming into Chinese chip, software and biotech groups at record pace while cutting their bets on e-commerce, as they try to align with Beijing’s political priorities and avoid increasingly broad regulatory repression.
Chinese President Xi Jinping has led a regulatory attack on internet platforms this year, hitting those in food delivery, e-commerce, fintech, games and education.
But the Chinese Communist Party’s desire to advance technologies such as high-end manufacturing has spurred other companies.
China’s semiconductor industry has been bolstered by a multibillion-dollar government plan, in part to counter the United States’ determination to stifle its tech industry. Beijing wants the country to produce 70% of its semiconductors in the country by 2025, up from a third today.
The value of venture capital investments in Chinese semiconductor companies rose 446 percent in the second quarter from the first, to a record $ 8.9 billion, according to data from Preqin. As part of a deal, Chinese manufacturing group BYD Semiconductor raised Rmb 1.9 billion ($ 293 million) in a Series A round from investors, including Sequoia China, in May.
“For China, the most important technological areas are semiconductors, aviation and life sciences. When President Xi talks about the importance of technology, he expressly elevated the manufacturing industry over digital products, ”said Dan Wang, Shanghai-based technology analyst at Gavekal Dragonomics.
Beijing has also encouraged investments in artificial intelligence. WeRide, an autonomous driving start-up, raised $ 310 million from investors including the Renault-Nissan-Mitsubishi Alliance in June.
In contrast, investments in Chinese fintech companies fell 36% to $ 360 million in the second quarter from the previous one, according to Preqin. The industry has been under crackdown since regulators withdrew Jack Ma’s Ant Group’s initial $ 37 billion public offering at the last minute in November.
Meanwhile, investment in gaming and e-commerce companies fell 96% and 54% to $ 121 million and $ 4 billion, respectively, in the second quarter. Groups that operate in these spaces, such as Tencent and Meituan, have also been targeted by Chinese regulators this year.
The co-founder of a large Silicon Valley venture capitalist with a large Chinese fund said he still plans to invest in the country, but only in biotechnology, software and other sectors considered ” safe ”.
According to Refinitiv, another data provider, 74 fundraising deals were made for chips in the second quarter and 133 for software companies. By comparison, there were only 42 in the e-commerce sector.
In public markets, Chinese internet companies have also been hit in recent weeks. The Nasdaq Golden Dragons Index, which tracks major Chinese stocks listed in the United States, including Alibaba and research group Baidu, is down 23% since early July.
Instead, investors bought shares of electric vehicle (EV) manufacturers, renewable energy companies and other areas that Beijing has designated as priorities for development.
The Shanghai Star 50 Index, which tracks companies in these sectors, is up 14% in 2021.
Shares of electric vehicle makers BYD and Geely, as well as chipmakers such as Tianjin Zhonghuan Semiconductor, have jumped this year.
” Investors. . . want to go into areas like electric vehicles and batteries as a safe haven, ”said Louis Tse, managing director of the Hong Kong brokerage firm Wealthy Securities. “Where can the money go? It goes to actions supported by national policy.
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