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The Impact of China's Export Restrictions on the Semiconductor Supply Chain
Yunnan Lincang Xinyuan Germanium Industrial Shares Rise
China's recent announcement of export restrictions on germanium and gallium, two metals used in the production of chips, fiber optics, and solar panels, has caused stocks to react. Yunnan Lincang Xinyuan Germanium Industrial's shares have risen by over 30% in the past five trading days. This is despite the company reporting a loss in the first half of the year. The market is recognizing the potential growth in Chinese chip subsectors and the importance of these materials in the semiconductor supply chain.
Investment Opportunities in the Semiconductor Supply Chain
Early-stage investment firm WestSummit Capital Management is actively seeking opportunities in the upstream part of the semiconductor supply chain. Managing director Bo Du emphasizes that Chinese firms are now making more money from investing in the supply chain rather than artificial intelligence. Less advanced chips, which are found in day-to-day products, have a larger market and are less sensitive to U.S. restrictions. Du predicts that China can establish its own production equipment and materials for these mature chips within two to three years. WestSummit Capital Management currently manages assets worth about 20 billion yuan ($2.77 billion) and plans to increase its investments in the sector through the end of the third quarter.
China's Export Curbs and the Impact on the Semiconductor Industry
These recent export restrictions imposed by China follow the sweeping U.S. export restrictions in October, which aimed to limit Chinese businesses' access to advanced semiconductor technology. However, Greg Ye, co-founder and managing partner of Delta Capital, believes that the restrictions have not had a significant business impact on most semiconductor companies in China or the U.S. Instead, the impact has primarily been on investor psychology. Ye notes that many investors initially withdrew from the sector due to these restrictions but are now returning. This sentiment is reflected in the performance of Shanghai New Vision Microelectronics, one of Delta's investments, which saw a 55% increase in its shares since its IPO.
Potential for More Export Controls
Considering the current political environment, it is likely that China will further strengthen its chip capabilities. Wei Jianguo, a former vice minister of commerce, suggests that the recent export controls are just the beginning. This could lead to Beijing implementing more restrictions on chips, chipmaking equipment, and chip design. Analyst Brian Tycangco of Stansberry Research believes that this aggressive move by China may provoke Washington to impose even stronger tech export restrictions. Tycangco anticipates a surge in the rare earth sector as a result. Notable names in this sector include Lynas Rare Earths, MP Materials, and China Rare Earth Holdings.
Summing Up China's Grip on the Semiconductor Industry
The recent export restrictions imposed by China on germanium and gallium have created significant shifts in the semiconductor supply chain and investment opportunities. Yunnan Lincang Xinyuan Germanium Industrial's shares have experienced a substantial rise amidst the recognition of the potential growth in Chinese chip subsectors and the importance of these materials in the semiconductor industry.
Investment firms like WestSummit Capital Management are actively seeking opportunities in the upstream part of the semiconductor supply chain, indicating a shift in focus from artificial intelligence. This move highlights the larger market and lower sensitivity of less advanced chips to U.S. restrictions. It is predicted that China can establish its own production equipment and materials for these mature chips within the next few years.
While the export restrictions have impacted investor psychology, semiconductor companies in both China and the U.S. have not experienced significant business impacts. As such, investors are beginning to regain confidence in the sector, as seen in the performance of Shanghai New Vision Microelectronics.
The potential for more export controls looms as China aims to further strengthen its chip capabilities. This could lead to additional restrictions on chips, chipmaking equipment, and chip design. This aggressive move by China may provoke stronger tech export restrictions from Washington, and a surge in the rare earth sector is anticipated as a result.
Considering these developments, new businesses in the semiconductor supply chain should closely monitor the evolving political environment and explore opportunities within less advanced chip production and the rare earth sector. Adaptability and understanding of the geopolitical landscape will be crucial in navigating the potential impacts and capitalizing on emerging prospects.
Article First Published at: https://www.cnbc.com/2023/07/09/the-chip-wars-are-heating-up-this-chinese-stock-rose-30percent-in-five-days.html
