Alleged tech theft and the rise of China’s CXMT 

Chinese chip company CXMT is the new high-tech darling of the markets. Its Shanghai share price soared by nearly 500% today. Formerly known as ChangXin Memory Technologies, it is now valued at around 3.3 trillion yuan, or more than US$487 billion.

Yet behind the financial headlines lies a dark secret, linking CXMT to allegations of intellectual property theft from South Korean giants Samsung Electronics and SK Hynix. Last year, former Samsung employees were indicted during a corporate espionage case.

In April, one engineer was sentenced to seven years in prison for selling chipmaking trade secrets to CXMT. At the time, the Hefei-based group in Anhui province was being bankrolled by state subsidies and local government investment.

“This IPO brings together multiple goals of the government, including aggressively promoting AI and advanced tech … and enhancing capital market development,” Eswar Prasad, a Cornell University professor, said, as reported by the Reuters news agency.

“AI and advanced tech can certainly boost productivity and output growth, but they are unlikely to raise household income and employment growth on a broad scale, so promoting these sectors may not help with economic rebalancing,” he pointed out.

Trade restrictions on tools are remaining the key challenge.

MS Hwang, Counterpoint Research

Chipping in:

• In the first three months of the year, CXMT accounted for 9% of global shipments. By 2028, its market share is forecast by Counterpoint Research to reach about 11%.
• But the Hong Kong-based technology firm estimated it will likely need at least a 15% global market share to be competitive in the long term, the Associated Press reported.

Delve deeper: “CXMT plays a critical role in China’s AI push, particularly in the face of US export controls,” Kyle Chan, of the Brookings Institution and an expert in China’s tech policies, stressed in an interview this week with ABC News.

Big picture: But those “export controls” will also highlight future risks in a rapidly fragmented marketplace. “Trade restrictions on tools are remaining the key challenge for CXMT,” MS Hwang, a director at Counterpoint Research, warned.

China Factor comment: At the heart of the problem is the artificial intelligence rivalry between China and the United States. As tensions rise, the spotlight on companies such as CXMT will only increase across global democracies.