Why does market capital rarely invest in semiconductors anymore?
Semiconductor investment has entered a behind-the-scenes era. State-owned capital has reduced its investment in semiconductors, while market capital has rarely invested in semiconductors at all. This has caused great concern in the industry.
Not long ago, market-based capital was the most important investor in the semiconductor industry. Before the big Fund invested in semiconductors, market capital was the main investor in the industry. After the big fund got involved, market capital still played an important role. However, the current significant withdrawal of market-oriented capital can be regarded as a warning for China's semiconductor industry. Market-oriented capital is the lifeblood of the semiconductor industry. Their ebb and flow have brought this once hot investment land into a dry period. The following are some phenomena we have observed during our recent visits to the front lines of industries:
- First, in the past, only about 25% of the money of the established first-tier semiconductor professional investment funds was invested in semiconductors.
- Second, the feature of state-owned capital leading semiconductor investment and financing is becoming increasingly prominent, while market-oriented funds are investing in semiconductors less and less.
- Thirdly, even for state-owned capital, in the past, the main purpose of state-owned capital's investment in semiconductors was to lay out industries, plan industries and plan projects. Nowadays, state-owned capital is keen on "bricklaying" style investment promotion, only investing in "relocation wheels" (relocating the headquarters of mature projects in other places), with the main purpose of attracting investment. It can be called a "two-move" collaboration, which is no ordinary person.
- Fourth, perhaps to avoid investment responsibilities or to reduce risks, most state-owned assets entrust their funds to the management of funds of state-owned enterprises or central enterprises, and are willing to act as limited partners themselves. Doing so may ensure safety, but it sacrifices investment efficiency.
Judging from the above phenomena, market-oriented capital has shrunk in terms of the amount of funds, investment methods, and investment vitality. It can also be seen that the investment of state-owned assets has entered a negative state as a result.
Why did market-oriented capital withdraw
The enthusiasm of market capital for semiconductors has declined mainly due to the following difficulties:
First, the difficulty of listing and exiting semiconductor projects has increased. The review process for A-share listings has become increasingly strict. Since 2024, the difficulty for enterprises to go public has significantly increased. In the first half of 2025 alone, approximately 49 enterprises withdrew their IPO applications. Some enterprises have turned to the Hong Kong stock market. However, due to the insufficient liquidity of the Hong Kong stock market, many enterprises, even if they are listed on the Hong Kong Stock market, their market value and trading volume have been unable to meet the standards of the Stock Connect program for a long time, and they still cannot raise the necessary funds. Meanwhile, the difficulty of exiting listed projects is also increasing. For instance, the lock-up period is relatively long. Under the intervention of the new policy, some project capital is passively delayed in exiting after reaching the lock-up period.
Second, the difficulty of semiconductor projects has increased, and the investment risks have also risen. The risks cannot be shared through the capital market, so funds are reluctant to be invested in semiconductors. At present, the domestic production of semiconductors has mostly been completed, with only the tough problems remaining. These projects carry relatively high investment risks. If the risks are not shared through listing, market capital will be reluctant to take risks. But now, instead, the listing channels have been tightened and the risk tolerance has been reduced. The current management rules only apply to projects that previously had clear profit expectations and are not suitable for those that are currently risky and highly innovative.
Third, due to the unsmooth exit of state-owned capital, the mergers and acquisitions that market capital is willing to carry out cannot be carried out. At present, the projects that are relatively attractive to capital are mergers and acquisitions and integration. However, due to the unresolved issue of impairment of state-owned assets, mergers and acquisitions and integration are difficult to advance. Under the current regulatory measures, mergers and acquisitions integration is a relatively clear market for the next stage. Many market-oriented capitals are holding onto their cash and waiting, waiting for asset prices to drop and integrate.
In simple terms, the fundraising, investment, management and exit of semiconductor venture capital have all entered a deep-water zone. In fundraising, market-oriented capital is hard to find, and state-owned capital is more willing to invest in state-owned projects. Most of the projects that could be localized have been completed, and the remaining ones are all tough nuts to crack. The industry as a whole is under pressure, making it difficult to carry out mergers and acquisitions and integration. Exit, intensified supervision, and lack of exit channels. When obstacles are encountered in fundraising, investment, management and exit, market-oriented venture capital has no choice but to leave the market.
Market-oriented capital is indispensable.
Although China's semiconductor industry has basically completed the foundation-laying work, it still requires a continuous stream of investment, and market-oriented capital should play a key role.
First, the semiconductor industry is highly internationalized and market-oriented. Nowadays, international cooperation is greatly affected, but the essence of international competition has not changed. In the international competition of the semiconductor industry, there are very high requirements for technical acumen and decision-making efficiency. Market-oriented enterprises can better match this intensity of competition. In recent years, China's semiconductor industry has developed rapidly, precisely because it has adapted to the intensity of international competition.
Second, market-oriented capital has an advanced sensitivity to small-scale, high-risk and cutting-edge technological projects. State-owned assets mainly invest in heavy-asset projects, but the decision-making cycle of state-owned assets is longer and their tolerance for risks is lower. In comparison, the scale of market-oriented capital is smaller, but from the perspective of fundraising, investment, management and exit, market-oriented capital performs better. Therefore, considering professionalism and the responsible entity, generally, only when private capital investment reaches a certain amount will state-owned capital invest in a project, and the valuation and pricing often follow the lead of private capital. From the previous research, it can be seen that when private capital stops coming, state-owned capital also cools down.
Thirdly, at present, the industry is highly competitive, with an excess of mature technologies but insufficient effective production capacity, and advanced technologies are still in short supply. Due to the high risks associated with innovative technologies, local state-owned capital often dares not invest in high-risk advanced technologies and is only willing to invest in highly certain projects. Therefore, for some high-risk breakthrough projects and new technologies, it is mainly necessary to rely on market capital for investment.
For China's semiconductor industry, state-owned capital is strong, while market-oriented capital is relatively weak. However, the latter dominates the pricing power and investment direction of the market. For China's semiconductor industry to achieve sustainable development, market capital must return.
How to regain market capital
From the above discussion, it can be seen that the semiconductor industry still has a strong demand for capital. If the obstacles can be overcome, market-oriented capital will still be willing to return to the market.Here are some thoughts on this research:
First, we will continue to improve the construction of the capital market. Under the premise of severely cracking down on violations, we will tolerate and accept risks, allowing the market to choose for itself how to deal with those projects with greater innovation, and enabling venture capital to truly engage in risky innovations. China's semiconductor industry has advanced into uncharted territory. There are hardly any projects that guarantee profits anymore, and every step forward carries high risks. If venture capital is still required to have a high degree of certainty in the capital market, it will drive venture capital away from the market.
Second, mergers and acquisitions and integration are not only related to the growth and strengthening of the semiconductor industry, but also to resolving severe internal competition and improving the quality of industrial development, as well as the management and exit of industrial funds. At present, a considerable number of projects are already facing operational difficulties and need to be re-launched through integration. The exit of state-owned assets has become an urgent task for mergers and acquisitions and integration. We should rationally accept the impairment of state-owned assets to promote the mergers and acquisitions and integration of the semiconductor industry, and make good use of measures such as bankruptcy reorganization procedures and debt-to-equity swaps to guide the exit of state-owned assets.
Third, the management and operation and maintenance of state-owned assets should be more market-oriented. It is necessary to strengthen cooperation with market-oriented capital, increase investment in innovative projects, and drive corresponding policies to pay more attention to high-risk projects. As the industry enters a critical stage, investment risks are bound to increase. If state-owned capital cannot adapt to the investment in high-risk projects, it will not be able to provide the necessary financial support for the industrial breakthrough.
Conclusion
The self-reliance and self-strengthening of the semiconductor industry is a testing ground for the new national system, and relevant regulatory rules must keep pace with The Times. If the semiconductor industry fails to adapt to the new capital market situation, the necessary funds for innovation and breakthroughs will not be in place. At present, the semiconductor industry has entered a deep-water zone, and major changes need to be made to relevant regulatory measures to adapt to the new process of self-reliance and strength in the semiconductor industry.
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