Xi’s call to win the tech race points to a new wave of Chinese state-directed spending

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By Josh Horwitz

SHANGHAI – President Xi Jinping’s call for China to “win the battle” in core technologies could signal an overhaul of Beijing’s approach to advancing its tech industry, with more spending and government-led interventions state to counter US pressure, analysts say.

Achieving autonomy in technology featured prominently in Xi’s comprehensive work report to launch the Communist Party Congress every five years, with four mentions compared to none in 2017. The term “technology” was mentioned 40 times , compared to 17 times in the 2017 congress report.

Although the report does not name any other country or specific sector for this purpose, 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 conclusion was that increased spending in China, particularly in STEM (science, technology, engineering and mathematics) and political support was likely.

Iris Pang, Chief Economist for Greater China at INGsaid Xi’s remarks dealt with “the urgent need for talent and the promotion of self-sufficiency in technological progress”.

“We think it echoes the United States FRIES Act,” Pang said, referring to US regulations. “As such, research spending on semiconductor technology is expected to increase. Typically, policies are released after such significant events in China.

On Monday, shares of Chinese information technology companies rose more than 1%, while semiconductor stocks rose 0.7%.

In his speech, Xi listed a host of industries where he described China as having made breakthroughs over the past decade, including large aircraft, spaceflight, satellite navigation – all of which rely on a strong state support.

No mention was made of semiconductors, an area where China funneled billions of dollars of public funds but was also seen to have had more leeway in using market-driven approaches. compared to other sectors.

Venture capital (VC) has been allowed to invest in Chinese chip companies, with those companies receiving more than $30 billion in venture capital cash between 2020 and 2021, according to Chinese investment research firm CVInfo. State-backed chip companies are also free to buy and sell goods and supplies based on market demand, competing with foreign products.

But while the backing has propelled the rise of would-be giants like Semiconductor Manufacturing International Corp and Yangtze Memory Technologies Co Ltd, no Chinese chip company has achieved global dominance at the most advanced level, and the industry remains heavily dependent foreign technology.

The sector has also experienced costly failures.

In 2017, the Wuhan local government and investors in Beijing poured tens of billions of yuan into Wuhan Hongxin Semiconductor Manufacturing, a chip-making plant that promised to produce 30,000 wafers a month, only to see it close in 2021 in due to financial problems.

Ahead of 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, have come under scrutiny. corruption investigation, sparking speculation about the entity’s future.

Tianfeng Securities analysts Song Xuetao and Zhang Wei noted on Monday that Xi, in his speech, called on China to “build a whole new national system” for technology, one step away from how he urged in 2017 to build a system for technological innovation. which was “enterprise-based” and “market-based”.

For the chip sector in particular, “there could be a major model shift in the future, moving from a market-driven model to a domestic capital-driven model,” they said in a report by research.

($1 = 7.2051 Chinese yuan renminbi)

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