China’s twice-a-decade Communist Party congress, which concluded last week, set a tone of policy continuation with an emphasis on national security and common prosperity. The implication of these themes is stronger state control over the Chinese economy.
Panic selling hit markets following the closure of the Party congress, with the Hang Seng China Enterprises Index tumbling to the lowest level since 2008 following concerns among investors about the country's zero COVID policy remaining in place.
However, the congress also sent a clear signal that the party wants to shore up innovation-driven hard technology to increase Chinese self-reliance amid "perilous and stormy seas,” in the words of President Xi Jinping.
The bad sailing weather is partly due to US President Joe Biden's unexpectedly tough stance on Chinese semiconductors. Since he announced export controls at the beginning of October, there has been a flurry of activity in the sector. For example, Vergiga Semiconductor (Wei Zhao Ban Dao Ti), a developer of semiconductor microelectronics products, raised hundreds of millions of CNY in a Series C fundraising round within days of the US announcement.
The sector was already a hotspot. Inbound investment in China’s semiconductor industry has seen year-on-year growth in deal value of more than 150% consecutively in 2020 and 2021, according to Dealogic data.
Flavours of the month
Semiconductors aren't the only sector on an upswing. Deal values in industrial automation and data-related sectors are also growing, according to Dealogic data.
Looking ahead, artificial intelligence (AI), industrial automation, data processing, lithium-ion batteries and new materials are likely to thrive in the new circumstances.
Meanwhile, environmental protection and clean energy are expected to remain flavours of the month as the government aims to forge ahead with its green transition. The agriculture and defense sectors could also benefit from the new emphasis on national security.
Deals in the pipeline
In the congress report, reforms and high standard opening were still underscored. The cooling economy means no more low-hanging fruit, so foreign investors will need to be nimble and selective in identifying investment opportunities in line with national strategy.
Companies recently reported to be seeking investors include security chip maker Mowei Semiconductor and industrial automation players such as HYD AI, Longhe Intelligent Equipment Manufacturing and Mingxin Intelligence Technology.
At least a fast-track travel procedure for some foreign business and investment leaders, announced yesterday (25 October), will make it easier for foreign investors who want to see Chinese tech opportunities with their own eyes.
