Chinese chip stocks rise after Nancy Pelosi’s visit to Taiwan

US House Speaker Nancy Pelosi’s recent visit to Taiwan stoked tensions between the US and China and angered Beijing, but did little to deter investors from plowing money into China’s semiconductor companies.

On Friday, shares of China’s biggest chip companies rose the most since 2020 as investors bet that the growing Sino-US chip showdown would spur progress for China’s semiconductor sector.

China’s semiconductor index rose nearly 7% on Friday and 14.2% for the week, the best weekly performance in over two years. The index’s rise means it is now at its highest level in four months. Mirae Asset Management’s Hong Kong-listed semiconductor exchange-traded fund (ETF), a fund that invests in Chinese semiconductor makers, rose 9.5% on the week. The fund is up 19.6% from its 2022 low in early May. The mainland’s biggest chipmaker Semiconductor Manufacturing International Corporation (SMIC) rose 15.8% on the week in Hong Kong.

The growing bullishness toward China’s chipmakers comes around the same time that the US Congress passed the CHIPS Act, which provides $52 billion for research, development and construction of chip manufacturing facilities (factories) on US soil. The legislation is an important milestone in the Sino-American showdown for chip and technology dominance.

Bet on the US-China chip showdown

Investors have interpreted recent events — from Pelosi’s visit to the passage of the CHIPS Act — as big opportunities for China’s semiconductor makers.

“Hong Kong and China chip stocks were on fire overnight,” Brendan Ahern, chief investment officer at KraneShares, a China-focused mutual fund, wrote in a Friday note. “This is a result of Pelosi’s trip as there will be a move by China to become self-reliant on chips from the US. This is no different than recent US legislation to increase US chip production,” he said. China’s homegrown chip makers will realize “huge opportunities to replace imported products,” said Niu Chunbao, chief investment officer at investment management firm Wanji Asset. Reuters.

The US has also imposed export controls that restrict companies from supplying advanced chip technology to certain companies in mainland China. The U.S. has fallen behind Asia in chipmaking—its global share now stands at 12%, compared with nearly 40% a few decades ago—but it leads the world in cutting-edge chip design and technology that global chipmakers rely on. For example, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest and most valuable chip maker, stopped supplying Chinese telecom giant Huawei with advanced chip technology at the behest of Washington, costing TSMC 30% of its revenue.

Like other nations, China is spending billions to strengthen its chip production and capacity. But Beijing still imports over $300 billion worth of semiconductors annually. The country’s ‘Made in China 2025’ plan, released in 2015, outlines its goal to become self-sufficient in advanced technology and produce 70% of its own chips by 2025.

Recent US moves, including the passage of the CHIPS Act and Pelosi’s visit with TSMC CEO Mark Liu, could encourage Beijing to provide even more support to its burgeoning chip sector. As Vey-Sern Ling, CEO of the bank Union Bancaire Privit isei Singapore, told Bloomberg: “China’s focus on supporting its domestic semiconductor chip industry should be unwavering going forward, and heightened tensions with the US will only fuel the pressure further.”