China steers domestic capital toward strategic tech as $28 trillion market is tapped

Beijing is trying to shift how China finances the expansion of its strategic technology industries by steering more private capital and market funding into semiconductors, artificial intelligence and other key sectors instead of relying mainly on state subsidies and public investment.

Market push

China's stock and bond markets together are worth about $28 trillion, while households hold roughly $26 trillion in savings. The Chinese leadership aims to redirect a portion of that wealth away from bank deposits and property into companies that develop strategic technologies.

A concrete example of the new approach is CXMT, a domestic memory-chip maker that completed an accelerated initial public offering in Shanghai and raised about $9.8 billion. Its shares surged by more than 500 percent during the first hours of trading, underscoring how quickly market financing can mobilize large sums for favored firms.

For decades Beijing depended heavily on state subsidies, tax incentives and government-backed investment funds to build strategic industries. Moving to a model that mobilizes private savings and capital markets is seen as essential because of the wide gap with the United States in market-based fundraising. In the past two years Chinese technology companies have raised about $217 billion through IPOs and bond sales, while U.S. companies raised roughly $1.4 trillion — more than six times as much.

Authorities are speeding approvals for strategic firms, easing stock-market access and encouraging issuance of technology and green bonds. One notable financial advantage for Chinese issuers is cheaper borrowing costs: large Chinese tech groups are paying an average interest rate of about 1.9 percent on bonds this year, more than three percentage points below comparable U.S. peers.

Despite cheaper capital, market-based financing does not solve every problem: Chinese banks still prefer lending to large, already profitable tech companies rather than younger firms that are burning cash on research and development. That is why regulators and policymakers are pushing for a stronger role for equity and bond markets so that a portion of the country’s vast private wealth becomes a reliable source of capital for the technology sector.

Separately, Beijing has introduced a new package of trade restrictions targeting the United States, adding another layer of tension to the economic rivalry between the two powers.

Photo: Tanapong Sungkaew / Alamy / Alamy / Profimedia