China's new laws encourage chipmakers to merge instead of going public — policy shift comes after tens of thousands of Chinese semiconductor firms went out of business

Tens of thousands of China-based semiconductor companies have recently gone out of business, and numerous IPO processes have been halted or terminated. As a result, Chinese authorities are said to now encourage mergers and acquisitions (M&As) rather than initial public offerings (IPOs) to build stronger companies. The aim is to concentrate resources on technological advancements into larger entities, thus building strong companies rather than a huge number of weak companies.

To better allocate resources and promote innovation, China has introduced new laws, such as the STAR Market Eight Provisions, to encourage M&A rather than IPOs for tech companies. The China Securities Regulatory Commission aims to create a favorable environment that supports tech companies with so-called critical technological capabilities. Essentially, China's government wants promising tech enterprises to receive the support needed to thrive, but without IPOs. 

The STAR Market Eight Provisions, introduced in June, aim to support M&A for tech firms, even those currently unprofitable, to enhance their long-term growth and sustainability. To do so, new mechanisms are being implemented to effectively identify and support enterprises with promising technologies. 

This initiative, which includes refinancing, mergers, and acquisitions, is part of a larger effort to consolidate the country's semiconductor industry and focus on the continued development of new technologies. This strategic shift underscores China's dedication to fostering innovation and improving the long-term prospects of its tech industry. 

In addition, China's securities regulator has intensified efforts to crack down on financial misconduct, ensuring that only high-quality firms are permitted to go public. This has already resulted in a surge in IPO terminations and even the delisting of companies already present at stock exchanges. New regulations have made it more challenging for companies to meet the criteria necessary for listing on the stock exchange. Additionally, some companies withdrew their applications due to weak financial performance, which did not meet the higher expectations set by new policies. 

When it comes to numbers, 36 semiconductor companies canceled their IPO reviews in the first half of the year, nearly double the number from the same period last year. These terminations collectively involved a planned fundraising amount of around $5.8 billion. According to DigiTimes, each of these companies planned to raise about a billion dollars. The report claims that the frequency of terminations notably increased in May and June.