U.S. House Speaker Nancy Pelosi’s recent Taiwan visit inflamed U.S.-China tensions and incensed Beijing, yet did little to deter investors from plowing money into China’s semiconductor companies.
On Friday, shares of China’s biggest chip companies surged the most since 2020, as investors bet that the growing Sino-U.S. chips showdown would spur the advancement of China’s semiconductor sector.
China’s semiconductor index gained nearly 7% on Friday and 14.2% on the week, the best weekly performance in over two years. The index’s gains means it’s 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 manufacturers, jumped 9.5% on the week. The fund has surged 19.6% from its 2022 low in early May. The mainland’s top chip producer Semiconductor Manufacturing International Corporation (SMIC) advanced 15.8% on the week in Hong Kong.
The growing bullishness toward China’s chipmakers comes around the same time the U.S. Congress passed the CHIPS Act, which provides $52 billion for research, development, and the building of chip fabrication plants (fabs) on U.S. soil. The legislation is a key milestone in the Sino-U.S. showdown for chip and tech dominance.
Betting on the U.S.-China chips showdown
Investors have interpreted recent events—from Pelosi’s visit to the passage of the CHIPS Act—as major opportunities for China’s semiconductor manufacturers.
“Hong Kong and China chip stocks were on fire overnight,” Brendan Ahern, chief investment officer at KraneShares, a China-focused investment fund, wrote in a Friday note. “This is fallout from Pelosi’s trip as there will be a move from China to become self-reliant on chips from the U.S. This is no different than the recent U.S. legislation to boost U.S. chip production,” he said. China’s homegrown chipmamkers will realize “huge opportunities to replace imported products,” Niu Chunbao, director of investment at investment management firm Wanji Asset, told Reuters.
The U.S. has also imposed export controls that restrict companies from providing advanced chip technology to certain firms in mainland China. The U.S. has fallen behind Asia in chip manufacturing—its global share now sits at 12% compared to nearly 40% a few decades ago—but it leads the globe in cutting-edge chip design and technology, which global chipmakers rely on. For instance, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest and most valuable chipmaker, stopped providing Chinese telecoms giant Huawei with advanced chip technology at the behest of Washington, which cost TSMC 30% of its revenue.
Like other nations, China is spending billions to shore up its chip manufacturing and capacity. But Beijing still imports over $300 billion worth of semiconductors annually. The country’s ‘Made in China 2025’ blueprint, released in 2015, outlines its goals to become self-sufficient in advanced tech and produce 70% of its own chips by 2025.
The U.S.’s recent moves, including the passage of the CHIPS Act and Pelosi’s visit with TSMC CEO Mark Liu, could galvanize Beijing to provide even more support for its budding chip sector. As Vey-Sern Ling, managing director at the bank Union Bancaire Privée in 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 push further.”
Sign up for the Fortune Features email list so you don’t miss our biggest features, exclusive interviews, and investigations.