(Yicai) May 16 -- Investors are watching China’s semiconductor sector closely as the country’s big chipmakers log growth this year but their enthusiasm has yet to return to the levels they were at before China tightened listing requirements in the middle of last year, industry insiders said.

Investor fervor for the semiconductor and other sectors suddenly cooled in the second half last year after the standards to go public on mainland bourses were raised, Liu Lin, financial director at a startup engaged in the chip back-end process, told Yicai. Before that, between 2022 and early 2023, it was relatively easy to raise funds, he added.

Investors have become more cautious about chip startups since listing requirements were tightened, said Gu Wenjun, chairman of consultancy firm ICWise.

Investments in the semiconductor and electronics sectors have been tumbling for the past three quarters. There were 573 financings in the first quarter, down from 671 in the fourth quarter last year which was a drop from 732 in the third quarter, according to market data platform Wind.

And 427 applications to go public on mainland stock exchanges had been suspended as of yesterday.

Some startups are signing valuation adjustment mechanism agreements with investors so that if the startups fail to go public within an agreed period, the founders need to buy back equity from the investors, Liu said.

“If we breach the agreement, the costs would reach hundreds of millions of Chinese yuan, equivalent to tens of millions of US dollars, an amount that our startup simply cannot afford,” Liu said. Even if unlimited liability is specified in the agreement, investors are still afraid that they will not be able to recover any losses.

But China’s semiconductor industry is picking up and investors are showing more interest although they remain very cautious, Liu said.

SMIC’s wafer shipments climbed 7 percent in the first three months from the previous quarter to 1.8 million pieces, and its capacity utilization ratio gained 4 percentage points to 80.8 percent.

While Hua Hong Semiconductor logged a 7.9 percent jump in wafer deliveries over the period to one million units. As of March 31, the Shanghai-based company’s capacity utilization ratio gained 7.6 percentage points to 91.7 percent.

Next quarter, there will be news about an artificial intelligence chip fundraiser, Yu Feng, vice president at Winsoul Capital, told Yicai.

Editors: Xu Wei, Kim Taylor