The Chinese Communist Party is attempting to integrate the dispersed semiconductor equipment companies in China to create a globally competitive “national team” in response to technological containment pressure from the United States and Europe. However, due to significant differences in interests among all parties, the plan is facing obstacles and making limited progress. Moreover, there are doubts within the industry whether mere integration can bring meaningful technological breakthroughs to China’s technology sector.
According to reports from The Financial Times on the 5th, the National Development and Reform Commission of China has convened multiple chip equipment companies earlier this year to discuss merging into a government-led giant enterprise, aiming to concentrate resources and integrate technologies. However, negotiations have reached an impasse due to serious disagreements between companies and investors on valuation and equity structure.
“One side is unwilling to sell at a loss, while the other side is unwilling to pay a premium for acquisition, making it impossible to reconcile the interests of both parties,” said a source familiar with the negotiations. Another insider pointed out that although discussions are ongoing, the likelihood of successful large-scale consolidation has significantly decreased.
The Beijing authorities hope to nurture strategically valuable enterprises by integrating resources. Qingyuan Lin, an analyst at Bernstein, stated, “Diversified investments are difficult to generate economies of scale, and China’s policy is shifting towards nurturing domestic leading enterprises with international competitiveness.”
However, Lin also warned that the risks of consolidation should not be underestimated. If potential buyers discover operational issues and overvaluation in target companies, they may choose to withdraw, leading to a gap between policy direction and market reality.
Some domestic industry insiders also express skepticism about whether consolidation can truly bring about technological breakthroughs. A chip investor in Shanghai admitted that lacking technological advantages, mergers may not necessarily create substantial value.
Driven by policies, many non-tech companies are eagerly announcing moves into semiconductors, such as real estate developers, pesticide manufacturers, and knitting machine producers, but most of these acquisition plans end in failure. There have been 8 aborted acquisition cases this year.
For example, shoe brand “Aokang” attempted to acquire semiconductor company “Union Memory Storage,” and knitting machine manufacturer “Cixing” planned to acquire “Shenyang Shunyi,” both recently canceled merger plans due to valuation disputes. Leading in the electronic design automation (EDA) field, “Huada Jiutian” (Empyrean Technology) terminated the acquisition of its competitor “Xpeedic” in July.
Industry insiders point out that even with government backgrounds, selling parties are unwilling to sell assets at low prices even in deteriorating performance, causing investors to hesitate, making transactions difficult to finalize.
The Financial Times cited industry insiders’ analysis, stating that the biggest obstacle to consolidation comes from local governments holding the majority of shares in these chip factories. In order to avoid the political risk of “selling domestic assets at a low price,” most local governments insist on controlling shares, leading to stagnation in integration.
Over the past decade, various regions have invested heavily in mature processes with support from local governments, resulting in overcapacity and price wars. Although Shenzhen, Shanghai, and other places are advancing in 7-nanometer processes, structural problems such as duplicate construction and resource diversification remain unresolved.
“This is the area most in need of integration, but local governments are reluctant to sell at a loss, hence potential buyers naturally retreat,” admitted an industry insider.
(The article referenced reports from The Financial Times)