The EconomistAugust 1st 2020 Business 53T
o see theworld of technology shift be-
fore your eyes, look at the short history
of the Shanghai Stock Exchange Science
and Technology Innovation Board. China’s
president, Xi Jinping, unveiled plans for
the new exchange, modelled on New York’s
Nasdaq and known as the star Market, in
November 2018. It was to be a freer route to
capital markets for Chinese tech firms. It
opened in July 2019 with 25 companies and
rocketing valuations. A year later, on July
23rd, the exchange launched an index of its
50 biggest companies.
A few months ago most people had nev-
er heard of the star Market or its firms. The
most valuable was amec, a low-key Chi-
nese manufacturer of chipmaking tools
with a market capitalisation of around
100bn yuan ($14bn). Other big members,
which make semiconductors (Montage
Technology), office software (Kingsoft) or
railway electronics (China Railway Signal
& Communication), were mostly anony-
mous to Western ears.
That all changed in July. First, Semicon-
ductor Manufacturing International Cor-
poration (smic) listed its shares on the
board, raising $6.5bn from the offering. A
week later Ant Group, the payments arm of
Alibaba, China’s e-commerce titan, said it
would also list shares there (as well as in
Hong Kong). Ant may be the most valuable
private company on Earth, valued at $150bn
or so. That flotation alone could push the
star Market past the Nasdaq as the world’s
top venue for tech capital-raising this year.
And Ant isn’t alone. Geely, a big Chinese
carmaker; the fintech arm of jd.com, an
online retailer; Imagination Technologies,
a British chip designer with Chinese inves-
tors: all are reportedly mulling listings. The
bourse already hosts 141 firms. Another 409
are in the process of registering.
The star Market’s most eye-popping
valuations are for companies whose pro-
ducts are central to the Chinese govern-
ment’s desire for an independent domestic
semiconductor industry. Shares of smic
and amec, for instance, trade at 200 and
500 times earnings. The average price-to-
earnings ratio of star 50 firms is a juicy 71,
compared with 52 for Nasdaq.
By all technical accounts that looks
rich. Experts consider smic and amec to be
behind cutting-edge Western rivals. So
how did the star Market come from no-
where to become the world’s largest money
pile for tech in just a year?The short answer is the tussle for tech-
nological and economic supremacy be-
tween America and China. smicdelisted
from the New York Stock Exchange last
year, ostensibly for administrative rea-
sons—but looming American legislation
that could bar Chinese companies from
American exchanges may well have
weighed on its decision, too. An invest-
ment in the likes of smic or amec is, in oth-
er words, a wager that Beijing’s ambition of
semiconductor independence is realistic—
and that the Communist Party will not al-
low its champions to fail, even if they could
not match high-end global competition.
Judging by the star 50 index, up by nearly
50% so far this year (see chart), plenty of in-
vestors like those odds.^7Why China’s answer to Nasdaq is
going gangbusters
Technology companies
Wish upon a STAR
Cosmic inflation
Stockmarket indices, 2020
January 1st 2020=100Sources:CSI;DatastreamfromRefinitiv180
160
140
120
100
80
60
Jan Feb Mar Apr May JulJunNASDAQ compositeSTAR 50V
anmoof, a dutchbicycle-maker,is
known for sleek designs and clever
advertising. In a television spot for its
newest model, images of the evils of car
culture—accidents, gridlock and pollu-
tion—are projected onto the skin of a
luxury car, which melts, turning into one
of the company’s elegant e-bikes.
Electrically assisted bicycles are not
about to replace cars. But they are boom-
ing, especially in Europe, where sales
rose by 23% in 2019, to 3m units. E-bikes
are unlocking even saturated bicycle
markets like the Netherlands, where the
average person already owns 1.3 push-
bikes. Last year Deloitte, a consultancy,
estimated the number of e-bikes world-
wide at 200m, and expected it to hit
300m by 2023.
That may prove to be an underesti-
mate now that coronavirus-wary com-
muters are shunning public transport
and cities are expanding cycle lanes.
Sales, which braked in March and April
owing to supply-chain wobbles and
shuttered stores, shifted into high gear
when lockdowns lifted. In June revenue
at Accell, Europe’s biggest bicycle manu-
facturer, was 53% higher than a year ago,
largely thanks to e-bikes.
Big firms such as Accell and Giant of
Taiwan compete with sporty brands such
as America’s Cannondale and affordable
city rides from qwic. Brompton, a British
maker of fancy folding bikes, has been
making 10% of its £42.5m ($56m) in
annual sales from the electric sort, and
hopes eventually to raise that figure to
40%. VanMoof, which raised $13.5m from
investors in May, bills itself as the Tesla
of e-bikes. Like the electric-car maker itdesignsitsownparts,motors and soft-
ware rather than relying on off-the-shelf
bits and bobs. The result is a more seam-
less product, boasts Taco Carlier, a Dutch
engineer who co-founded VanMoof with
his brother in 2009.
Demand is growing faster than manu-
facturers can keep up, leading to long
backlogs and premium prices, which
start at around $1,000. Giant says that its
gross margin on e-bikes is around 25%,
above its average of 21%. VanMoof’s
machines go for $2,000 a pop. Mr Carlier
may, however, have to rethink his firm’s
marketing strategy. Though its polemic
against traffic jams evokes French nou-
velle vaguecinema, the ad was banned in
June by French authorities, for trying to
“discredit the automobile sector”.Electric shock
BicyclesTwo wheels good. Two wheels plus a motor betterRolls like a Rolls