VanEck today launched the VanEck China Semiconductor ETF (Nasdaq: SMHC), a rules-based strategy providing pure-play exposure to China’s domestic semiconductor industry, a segment largely absent from conventional semiconductor allocations.
The gap in existing semiconductor exposure
Most semiconductor ETFs concentrate holdings in established U.S., Taiwanese, and European leaders across design, fabrication, and equipment. China’s domestic chip ecosystem — spanning design, manufacturing equipment, and advanced packaging — remains underrepresented in both broad semiconductor and China-focused funds.
SMHC extends VanEck’s semiconductor franchise, which includes the VanEck Semiconductor ETF (SMH) and the VanEck Fabless Semiconductor ETF (SMHX). The new vehicle targets companies deriving at least 50% of revenue from semiconductors or semiconductor equipment, ensuring direct exposure to the domestic build-out rather than diversified conglomerates.
Drivers of the domestic build-out
China’s semiconductor self-sufficiency push rests on multiple reinforcing forces, not a single catalyst. National policy mandates chip independence as a strategic priority, while state-directed procurement requires government bodies, state-owned enterprises, and critical sectors like energy and telecom to favor domestic alternatives. This creates a captive order book that allows local firms to scale before competing on global cost or performance.
U.S. export controls have accelerated rather than impeded this trajectory. Since 2019, successive restrictions on technology access have turned each foreign supplier lockout into a procurement mandate for domestic substitutes. In 2025, China became the world’s largest spender on semiconductor manufacturing equipment, signaling where the industry’s physical infrastructure is being built.
Sovereign capital underpinning the strategy
State financial commitment provides the foundation. China’s National IC Fund has committed approximately $98 billion across three phases since 2014, with $47.5 billion allocated in the most recent phase in 2024. This sustained capital, combined with policy and captive demand, creates a self-reinforcing cycle.
SMHC tracks the MarketVector China Semiconductor 25 Index, holding 25 names weighted by modified free-float market capitalization with position caps, rebalanced quarterly. The index excludes diversified conglomerates with incidental chip exposure, ensuring each constituent is a direct beneficiary of the domestic build-out.
Significance
SMHC addresses a structural blind spot in semiconductor investing. As China constructs a parallel supply chain insulated from global trade restrictions, investors seeking exposure to this build-out previously lacked a dedicated, rules-based vehicle. The ETF’s launch signals that the market now recognizes China’s semiconductor ecosystem as a distinct, investable opportunity — one driven by policy, capital, and captive demand rather than global competitive dynamics alone.
