China’s SME Industrial Policy in 10 Charts
Beijing and State-Owned Enterprises Not Investing in Sync
Whenever a communist country releases its 5-year or 10-year plan, Washington takes a collective gasp. These fears assume that countries like China function like centrally controlled monoliths, where policymakers in Beijing can command and control every yuan spent across its vast territory —or at least, every government yuan.
This week’s Chip Capitols chart serves to disillusion readers of that theory. In doing so, I recall the idiom 山高皇帝远 (“mountains are high, and the emperor is far”). It is not easy to centrally manage a country as vast and diverse as China. Government actors like state-owned enterprises (SOEs) and local governments operate with their own parochial interests in mind, and Beijing cannot always afford the political capital required to bring SOEs and local governments in line with national-level industrial policy goals.
The Chinese government is absolutely commited to supporting its domestic semiconductor manufacturing equipment (SME) industry through market-distorting equity investments and subsidies. (See last week’s article for my analysis of China’s overall public and private investment into chip toolmakers. There we saw that from a peak of $6.27 billion in central government, SOE, and private investment in SME firms in 2021, investment fell to a trough of $1.57 billion in 2022 during the height of China’s COVID-19 pandemic. By 2023, investment grew to $2.86 billion, which was less than half of its former height.)
This week, we learn that these state-owned enterprises, which are absolutely political arms of the Chinese government, are not in lockstep with Beijing’s national goals.
As a reminder about this article series, many studies over the past half-decade, including here on Chip Capitols, have tried to figure out how public funds flow from the various organs of the Chinese government to the semiconductor sector. However, the use of conservative methodologies has prevented scholars from bringing forth numbers for the entire ecosystem.
I set out to compile as comprehensive data as possible on Chinese equity investments, subsidy grants, and tax credits for the country's key SME companies — regardless of whether they are public or private. This challenge required estimation based on the limited public statistics available for private companies, but it has allowed me to amass a treasure trove of charts about the Chinese SME sector.
The world deserves a first (if fuzzy) glance at the totality of China’s industrial policy for chipmaking equipment. Every week, I am releasing a new chart about Chinese government support for SME firms through (1) equity investments, (2) subsidy grants, and (3) tax credits. Today, we follow up on last week’s post to look at the coordination of central government and SOE equity investments.
Beijing and SOEs Not in Sync
If China’s central policymakers in Zhongnanhai (中南海) and the cadres leading SOEs were politically in sync, then one would assume that investments by the central government into SME firms would be followed by a commensurate bump in investments by SOEs into the same firms.
For each SME company receiving investments by China’s Big Funds (大基金) in 2021, 2022, and 2023, I examined the three-month periods following investments by the Big Funds to search for such bump in SOE investment interest:
First, I defined a “Pre-Central Stock Purchase” number as the share of total investments in each calendar year that was comprised of SOE investors. This number gave me a baseline of how interested SOEs were in each particular SME firm in a given year.
Second, I defined a “Post-Central Stock Purchase” number as the share of total investments in the three months following each company’s receipt of Big Fund investments that was comprised of SOE investors. This number served to show what the short-term reaction by SOE investors was to demonstrated interest in an SME firm by the central government.
Lastly, I averaged out the “Pre-” and “Post-” numbers across all SME firms getting Big Fund investments to get each year’s SOE investment baseline and average post-Big Fund SOE investment bump.
The results show that investments by the central government’s Big Fund have no consistent correlation with SOE investment decisions. In 2022, there was a 25% decline in the share of total investments made by SOEs in the three months following Big Fund investments. In 2022, there was an 8% increase in SOE investments. And, in 2023, the correlation was again negative at an 11% decline.
Beyond showing that central government investments do not affirmatively signal to SOEs that they should invest more in particular SME firms, these statistics show that central government investments do not signal anything to SOE investors. There is no consistent correlation, positive or negative, between investment decisions by the central government in Beijing and those by the quasi-governmental SOEs spread throughout the country. The mountains are indeed tall, and the emperor is far.
What’s Next
Next week, Chip Capitols will begin releasing charts on China’s other major tools for supporting its SME industry: grants and tax credits. These subsidy tools shine light on both the sectors of the chip industry that China prioritizes the most as well as on how different policy tools are more or less reactive to shifting domestic political climates in the PRC.
Stay tuned!
Methodology
*Same disclaimer as last week*
The following companies were analyzed for this article on equity investments. The scope of firms selected comprises all of those known to have received investments from either of the first two Big Funds, as well as those with the most advanced domestic technology in China in the following equipment areas: lithography, etching, deposition, implantation, epitaxy, and metrology.
Despite your author’s greatest efforts, I could not collect enough data about the not-publicly listed Shanghai Micro Electronics Equipment (SMEE) to speak confidently about its equity investments; however, subsequent charts about China’s subsidy grants and tax credits will include estimations of how SMEE benefited from those policy tools.
Firms analyzed:
中微公司｜Advanced Micro-Fabrication Equipment Inc. China
北方华创｜NAURA Technology Group Co., Ltd.
拓荆科技｜Piotech Inc.
天水华天｜Tianshui Huatian Technology Co.,Ltd.
长川科技｜Hangzhou Changchuan Technology Co., Ltd.
芯源微｜KINGSEMI Co., Ltd.
盛美上海｜ACM Research (Shanghai) , Inc.
中科飞测｜Skyverse Technology Co., Ltd.
华峰测控｜Beijing Huafeng Test and Control Technology Co., Ltd.
华海清科｜Hwatsing Technology Co., Ltd.
新益昌｜Shenzhen Xinyichang Technology Co., Ltd.
屹唐半导体｜Beijing E-Town Semiconductor Technology Co., Ltd.
北京烁科中科信｜Beijing Zhongkexin Electronics Equipment Co., Ltd.
凯世通｜Shanghai Kingstone Semiconductor Corp
浙江镨芯（万业企业）｜Zhejiang Praseodymium Core Electronic Technology Co., Ltd.
至微半导体｜Not certain about English name: Zhiwei Semiconductor
沛顿存储｜Payton Technology(Shenzhen) Co., Ltd.
东科半导体｜Dongke Semiconductor Wuxi Co., Ltd.
精测半导体｜Shanghai Precision Measurement Semiconductor Technology,Inc.
睿励科学仪器（上海）有限公司｜Ruili Scientific Instruments (Shanghai) Co., Ltd.
东方晶源｜Dongfang Jingyuan Electron Limited
合顿科技｜Hefei Payton Storage Technology Co., Ltd.
For public companies on the list, your author identified their top ten equity holders (central government, SOEs, and private) per quarter from Wind (万得), a site similar to Bloomberg that aggregates financial data on public companies. I then calculated each investor’s quarterly change in position to determine how many of each company’s stocks changed hands per quarter. Then I calculated how many new stocks each firm issued per year to determine how much new liquidity these investors provided each firm through their stock purchases.
For private companies on the list, your author found public reporting on their investing rounds and categorized investors into the same three buckets (central government, SOEs, and private) as for public firms.