REUTERS, Hong Kong

Artificial intelligence is powering China tech’s M&A resurgence. Video-games giant Tencent and Alibaba are eyeing acquisitions again, in the latest sign that sidelined stars are out of the sin bin. But chipmaking is driving most deals this year, like Hygon’s $16 billion mega-merger with supercomputer maker Sugon.

A crackdown to rein in what Beijing deemed the “reckless expansion of capital” had cast a chill on dealmaking among the country’s once-acquisitive private-sector giants. The campaign, which kicked off when officials derailed Ant’s public debut in late 2020, saw antitrust regulators hit e-commerce group Alibaba with a record $2.8 billion fine and scupper Tencent’s $5 billion merger of two local streaming units, among other things. By 2022, onshore M&A activity in tech and publishing had more than halved in value from the previous year, to $51 billion, according to data from Dealogic. Last year, just $42 billion worth of deals were announced. Outbound acquisitions have similarly slowed, hitting just $8 billion in 2024.

Things are starting to look up. Last week, Tencent’s music streaming arm said it would buy domestic podcast specialist Ximalaya for $2.4 billion in cash and stock. The parent company may also be keeping an eye overseas: Bloomberg reported that it had studied a deal for Tokyo-listed Nexon, though someone close to Tencent told Breakingviews that it was not considering an acquisition of the $16 billion game developer. Even Alibaba, which has focused more on offloading non-core assets under boss Eddie Wu, is back on the hunt: last month, it bought $250 million worth of convertible bonds in photo app Meitu as part of a broader partnership.

Even so, a new crop of chipmakers and AI outfits, rather than established internet giants, has taken the lead in M&A activity. That’s largely thanks to Beijing pushing for consolidation in the country’s fragmented semiconductor industry, which has been hobbled by U.S. export controls and sanctions. AI chipmaker Hygon Information Technology is answering the call by merging with Sugon in what will be this year’s biggest local tech deal. Other recent chip-related activity includes memory specialist YMTC’s $1.3 billion fundraising and National Silicon Industry’s near-$1 billion investment in a peer.

More tie-ups are on the way. According to media reports, the government wants to consolidate some 200-plus chip equipment suppliers to just 10, though officials have yet to confirm this. Regardless, in both state policy and boardrooms, AI is taking centre stage.

China’s Tencent is studying a potential deal for Tokyo-listed Nexon, Bloomberg reported on June 12 citing people familiar with the matter, and has contacted the South Korean family of Nexon’s late founder, Kim Jung-ju. Someone close to Tencent, however, told Breakingviews that the company has not reached out to the founder’s family to discuss a deal and is not considering an acquisition of Nexon.

Separately, Tencent’s music-streaming subsidiary on June 10 said it would buy Chinese long-form audio platform Ximalaya for $2.4 billion in cash and stock.