Under the superposition of long-term, medium-term, and short-term cycles, the chip sector is fluctuating accordingly and the industrial restructuring or reshuffle is going on. This is particularly obvious in the capital market: of the 51 largest mergers and acquisitions in the semiconductor industry, 32 were reached in the past six years (2015-20).

Last year, the total value of mergers and acquisitions in the semiconductor sector set a historical record, with three of the top five transactions in history inked in 2020. This fully reflects the fact that the capital market moves in accordance with the changes in the industrial cycle.

M&A deals are, in fact, a way for companies to achieve growth. A company has two growth models, namely, endogenous growth and extensional growth. The former refers to doing everything by itself.

But affected by factors such as accelerated technological iteration and industry cycle fluctuations, companies often adopt another growth mode in order to quickly seize opportunities－that is extensive growth, which refers to M&A.

For Chinese chip companies, I think dual-circulation is also needed. On the one hand, China must firmly hold the chip design and manufacturing in its hands; on the other, the nation can use external forces to achieve extensional growth.

Under the global trend of cooperation and mutual benefit, if companies can leverage their respective advantages through cooperation, they may be able to make the cake bigger together.

Chinese tech company Wingtech's acquisition of Dutch company Nexperia is a good example. Wingtech started from assembling devices for smartphone brands such as Huawei to Lenovo, and it gradually became the world's number one ODM (original design manufacturer) enterprise.

However, ODM companies are in the middle of the industry chain and are squeezed by both ends－the upstream are the high-tech chip giants, and the downstream are the mobile phone giants.

Therefore, if an ODM company wants to transform, it needs to walk on "two legs", and M&A deals are a relatively quick way to do that.

Wingtech, therefore, set its sights on Nexperia, which is a world-class IDM(integrated device manufacturer) enterprise whose business runs through multiple industrial chains, including chip design, chip manufacturing, chip packaging and testing.

The acquisition also helps Wingtech enter a new area: the automotive industry. Wingtech also gained a fast track to obtain vehicle manufacturer supplier certification.

Why can Wingtech acquire a company in Europe? In other words, what is the attraction of the Chinese market? I summarize the advantages of the Chinese market as"3M". To wit: market, money and manufacturing.

The market, that is China's huge market, boasts consumer electronics brands and new energy vehicle brands, which are gaining momentum.

Money means the high valuations commanded by the chip industry players in China's capital market and investors' preference for hardcore technology.

Manufacturing is China's advantage, given its industrial agglomeration, industrial coordination, and labor quality.

Therefore, the positive interaction between the domestic market and the outside circulation is the only way for the development of Chinese enterprises.

The writer is an associate professor of finance at China Europe International Business School in Shanghai.

The views don't necessarily reflect those of China Daily.