The Senate passed a bill this week that seeks to promote domestic development and growth of semiconductor chips in a bid to reduce reliance on supply chains and China. The bill is important for the U.S., but it’s what was missing from the legislation that could be noteworthy for Chinese companies listed in the U.S.
The Chips and Science Act, also called CHIPS-plus, passed in the Senate in a 64-33 vote and has headed to the House with hopes of passage and approval from President Biden before August’s recess. It contains $52 billion for U.S. computer chip manufacturers and tax credits to incentivize chip maker investment.
The bill would boost American competition within a China and Taiwan dominant sector while creating jobs domestically and avoiding supply chain impacts for semiconductor chips that are used in everything from cars to washing machines. The chips are also used as the main component of modern warfare.
“By approving one of the largest investments in science, technology, and manufacturing in decades… We say that America’s best years are yet to come,” said Senate Majority Leader Chuck Schumer (D-N.Y.) right before the final vote on the Senate floor.
The bill is slimmed down from its original version and notably is missing the addendums that addressed reducing the time for delisting of Chinese companies under the Holding Foreign Countries Accountable Act.
“Also missing from the new version of the bill are China investment restrictions. These revisions should be positive for US-listed Chinese companies,” wrote Brendan Ahern, CIO at KraneShares, on the China Last Night blog.
SEC Chair Gary Gensler gave a speech before the Center for Audit Quality during its recognition of the 20th anniversary of the Sarbanes-Oxley Act that mentioned his work with regulators in China to create a “Statement of Protocol” that would allow the Public Accounting Oversight Board inspectors access to the audit books of Chinese companies. It’s more forward momentum, particularly when viewed in light of the recent exclusion regarding Chinese delistings from the CHIPS-plus Act.
Investing in China through A-Shares
China’s growth has slowed in the second quarter to just 0.4% as the country faces continued COVID-19 lockdowns, although elements of those have been eased in the last month, and GDP grew just 2.5% in the first half of 2022. A notable difference between the economic sluggishness happening in China and that happening in the U.S. is that China continues to ease and add stimulus to its economy while the U.S. tightens aggressively.
For investors who are looking for exposure to China and any potential growth in the second half but wish to avoid the impacts of the threat of delisting in the U.S., investing in China’s A-shares market could be one option to consider. The A-shares markets have historically only been available to Chinese residents and consist of mainland Chinese companies that trade on the two local Chinese exchanges, the Shenzhen Stock Exchange and the Shanghai Stock Exchange.
The KraneShares Bosera MSCI China A Share ETF (KBA) invests in Chinese A-shares — specifically those from the MSCI China A 50 Connect Index.
This fund seeks to capture 50 large-cap companies that have the most liquidity and are listed on the Stock Connect while also offering risk management through the futures contracts for eligible A-shares listed on the Stock Connect. The index utilizes a balanced sector weight methodology to give exposure to the breadth of the Chinese economy.
KBA carries an expense ratio of 0.56% with fee waivers that expire on August 1, 2022.
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