Foreign investment funds bet on a U.S.-proof China chip industry

Foreign investment funds bet on a U.S.-proof China chip industry

Pictured here is a chip manufacturing plant in Suqian city, East China’s Jiangsu Province, April 1, 2022.

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BEIJING — China is so far behind the U.S. in semiconductor technology that some investors are betting on startups to fill that gap.

The U.S. this month imposed new restrictions to maintain a lead over China in advanced chip technology. While the rules immediately cut into U.S. and Chinese business revenue, they only affect firms selling the most advanced semiconductor technology, analysts pointed out.

The bulk of Chinese demand is for chips with far simpler tech, they said, and Chinese companies are still small players right now.

That gap leaves a large market opportunity far more insulated from U.S. restrictions — and one that Chinese startups can tap, some venture capitalists said.

Interest from investment funds

There are 'big opportunities' in China's tech sector: VC partner

U.S. restricts China chips

“The [new U.S.] rules make it more lucrative to develop non-U.S. chip making technology because it means less policy restriction and uncertainty,” said Alex Liang, partner at the law firm Broad and Bright in Beijing.

“However, chip-making is a mature technology that has been developed many years. It is hard to separate the U.S. and non-U.S. technology after all those years of intertwining development.”

The U.S. has taken multiple steps this year to limit China’s tech capabilities.

The Biden administration has named China a strategic competitor, following the Trump administration’s blacklisting of specific companies such as China’s biggest chipmaker, Semiconductor Manufacturing International Corporation.

To “develop everything from scratch I would say the latest move probably would have set China back by more than 5 years,” said Patrick Chen, head of research for CLSA in Taiwan.

Some products, such as cars, may have to sacrifice some non-essential artificial intelligence features for now, he said, although the manufacturers could keep basic sensors or micro controlling units since they don’t use the most advanced chips.

Looming risks

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