China IPOs/car chips: Muddled Kingdom sends investors a mixed message
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Beijing has trained its sights on initial public offerings as it widens its clampdown on business. Regulators have halted some listings in Shanghai and Shenzhen. BYD Semiconductor, a microprocessor manufacturer, is one telling victim.
Political survival in China, as elsewhere, involves supporting mutually exclusive propositions with equal conviction. But contradictions are glaring when officials bang the drum for chip self-sufficiency while impeding a financing by the country’s largest automotive chipmaker.
Watchdogs aim to control access to capital markets more strictly. They are probing the conduct of a hit list of investment banks and law firms as a result. The consequence is the reported suspension of 42 listings by businesses that retained those advisers.
BYD Semiconductor, whose parent BYD is a big electric vehicle maker, planned to raise at least $410m through a Shenzhen flotation. It wants to use the funds for developing automotive chips. The hiatus in the financing, advised by Beijing Tian Yuan Law, may delay new production.
The timing is bad. China car sales fell 12 per cent in July, down for the third straight month, mostly due to chip shortages.
Chinese automakers import nearly 90 per cent of their key microprocessors. Officials urge companies to reduce reliance. Semiconductor self-sufficiency has been a key goal for China since 2017. China has made progress in low-end microprocessors. But it remains a long way from catching up with foreign rivals and producing new generation high-end processors. Smartphones depend on these components, produced using advanced 5-nanometre processes.
China’s best shot of moving up the value chain is in automotive chips. The kinds needed for car sensors and power controllers can be made using older 28-nanometre processes.
In isolation, the suspension of the BYD Semiconductor float is no big deal. Regulators are investigating the adviser, not the would-be issuer. But investors are rightly rattled by the totality of state action against business. This appears uncoordinated. Stocks subject to unpredictable political attacks are bad investments. Beijing is inadvertently raising the cost of capital for its project to break free from US influence on key technologies.
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