Xi's call to win tech race points to new wave of Chinese state-led spending

YANG MING MARINE TRANSPORT

17/10/2022 10:31

By Josh Horwitz
       SHANGHAI, Oct 17 (Reuters) - President Xi Jinping's call
for China to "win the battle" in core technologies could signal
an overhaul in Beijing's approach to advancing its tech
industry, with more state-led spending and intervention to
counter U.S. pressures, analysts say.
    Achieving self-reliance in technology featured prominently
in Xi's full work report to kick off the once-every-five-years
Communist Party Congress, with four mentions versus none in
2017. The term "technology" was referred to 40 times, up from 17
times in the report from the 2017 congress.
    While the report did not mention any other countries or
specific sectors for that goal, it comes days after Washington
imposed sweeping new regulations aimed at undermining China's
efforts to develop its own chip industry. 
    HSBC analysts said their takeaway was that increased
spending in China, particular in STEM (science, technology,
engineering and maths) fields, and policy support was likely. 
    Iris Pang, chief economist for Greater China at ING, said
Xi's remarks addressed "the urgent need for talent and promoting
self-sufficiency in technological advancement". 
    "We believe that this echoes to the U.S.'s CHIPS Act," Pang
said, referring to the U.S. regulations. "As such research
spending on semiconductor technology should increase. Typically,
policies are released after such important events in China." 
    On Monday, shares in Chinese information technology
companies  .CSIINT  rose more than 1%, while semiconductor
stocks  .CSIH30184  rose 0.7%.  urn:newsml:reuters.com:*:nL1N31I053
    In his speech, Xi listed a slew of industries where he
described China as having achieved breakthroughs over the past
decade, including large aircraft, space flight, satellite
navigation - all of which rely on copious state support. 
    No mention was made of semiconductors, an area where China
has funnelled billions of dollars in government funds but was
also seen to have been given more lee-way in using market-led
approaches versus other sectors.
    Venture capital (VC) has been allowed to invest in Chinese
chip companies, with such firms receiving over $30 billion in VC
cash between 2020-2021, according to Chinese investment research
firm CVInfo. State-backed chip companies are also free to buy
and sell goods and supplies according to market demand, in
competition with foreign products.
    But while the support has propelled the rise of potential
giants like Semiconductor Manufacturing International Corp
 0981.HK  and Yangtze Memory Technologies Co Ltd, no domestic
Chinese chip company has gained global dominance at the most
advanced level, and the sector remains heavily reliant on
foreign technology. 
    The sector has also seen some expensive failures. 
    In 2017, the local government in Wuhan and investors in
Beijing placed tens of billions of yuan in Wuhan Hongxin
Semiconductor Manufacturing, a chip fab that promised to produce
30,000 wafers per month, only to see it shutter in 2021 due to
financial issues.
    In the run up to the congress, a number of people affiliated
with China's national chip fund, which has raised 342.7 billion
yuan ($47.6 billion) so far, were placed under investigation for
corruption, raising speculation over the entity's future. 
    Tianfeng Securities analysts Song Xuetao and Zhang Wei on
Monday noted that Xi in his speech called for China to "build a
completely new national-led system", for technology, a step away
from how he urged in 2017 to build a system for technology
innovation that was "enterprise-based" and "market-based". 
    For the chip sector in particular, "there may be a major
model change in the future, from market-driven to national
capital driven," they said in a research report.  
    ($1 = 7.2051 Chinese yuan renminbi)
 (Reporting by Josh Horwitz in Shanghai; Martin Pollard and
Jenny Su in Beijing; additional reporting by the Shanghai
Newsroom; Editing by Brenda Goh and Mark Potter)
 ((Josh.Horwitz@thomsonreuters.com; +86 21 20830007;))