China's New Law Promotes Chipmaker Mergers Over Public Listings

July 5, 2024 Hardware

In a significant shift in its industrial policy, China is now encouraging its domestic chipmakers to merge instead of going public. This move comes in the wake of a series of business failures in the industry, where tens of thousands of semiconductor firms have reportedly gone out of business.

China, the world's largest semiconductor market, has long been dependent on imports to meet its chip demands. To reduce this dependency and foster domestic growth, the Chinese government has been encouraging the development of its semiconductor industry through various policies.

However, despite the government's efforts, many semiconductor firms have struggled to survive. According to reports, tens of thousands of these firms have gone out of business, primarily due to a lack of advanced technology and a shortage of skilled manpower.

In response to this situation, the Chinese government is now encouraging chipmakers to merge, hoping that consolidation will help firms pool resources, share technology, and improve their competitiveness. This move marks a significant departure from the previous strategy of encouraging firms to go public to raise funds.

The new policy was announced by the China Securities Regulatory Commission (CSRC) and is aimed at promoting the healthy development of the semiconductor industry. According to the CSRC, the policy will encourage industrial concentration and eliminate outdated production capacity.

The new policy encourages mergers and acquisitions (M&A) among chipmakers and discourages initial public offerings (IPOs). It suggests that firms should consider M&A as a primary method of expansion and development. The policy also discourages firms from listing on the stock market, a move that contrasts with the previous policy, which encouraged firms to list to raise funds.

This shift in policy comes at a time when the global semiconductor industry is facing a severe chip shortage, which has affected several industries, including automotive and consumer electronics. China, being a major player in these industries, has been particularly affected by the shortage.

While the new policy could potentially help Chinese chipmakers improve their competitiveness and reduce their dependency on imports, it remains to be seen how it will be implemented and what impact it will have on the industry. As of now, the policy has been widely discussed in the industry and has generated mixed responses. While some believe that it will help the industry grow, others are skeptical about its effectiveness and potential impact on competition.

In conclusion, China's new policy encouraging chipmakers to merge instead of going public marks a significant shift in the country's industrial strategy. This move, aimed at bolstering the domestic semiconductor industry, could potentially change the dynamics of the global semiconductor market. However, it remains to be seen how this policy will be implemented and what its long-term effects will be.

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