Q&A Series: China is building its own chip industry — and this ETF is built to capture it

Semiconductor self-sufficiency has become one of Beijing’s defining strategic priorities, and the scale of capital flowing into the domestic industry is reshaping China’s position in the global chip landscape. Successive rounds of US export controls have restricted Chinese firms’ access to advanced chips, design software and manufacturing equipment, accelerating a state-backed push to build a more self-sufficient supply chain. China was the world’s largest buyer of semiconductor manufacturing equipment in 2025, underscoring the scale of investment going into the sector. While the country remains some distance from the leading edge in areas such as advanced lithography and cutting-edge logic, meaningful progress is being made across mature-node manufacturing, domestic equipment and chip design.

For investors, however, gaining targeted exposure to this build-out has been less straightforward. Global semiconductor ETFs are largely concentrated in US chipmakers, with limited exposure to semiconductor companies outside the US beyond major names such as TSMC. At the same time, broad China equity funds are dominated by internet platforms and financials, leaving semiconductor companies with only a small allocation. Against this backdrop, VanEck launched the VanEck China Semiconductor ETF (Nasdaq: SMHC) on 23 June 2026, providing targeted exposure to Chinese semiconductor companies across the value chain. In this article, we share insights from VanEck on how far China’s chip sector has come, where the opportunities lie, how the fund is constructed, and where it fits alongside existing semiconductor and China allocations.

Introducing the VanEck China Semiconductor ETF (SMHC)

The VanEck China Semiconductor ETF (Nasdaq: SMHC) is a passively managed fund that tracks the MarketVector™ China Semiconductor 25 Index, providing rules-based exposure to 25 of the largest and most liquid Chinese semiconductor companies across the full value chain — from chip design and fabrication to equipment, packaging, and materials.

Table 1: Key information about the ETF

1.      China was the world's largest spender on semiconductor manufacturing equipment in 2025. How much progress has China's semiconductor industry made in closing the technology gap, and where do you see the most attractive opportunities across the value chain?

China's progress in closing the technology gap has been meaningful, though uneven across the value chain. In mature node fabrication and domestic equipment supply, domestic companies have made real strides, capturing a growing share of fabrication spending as foreign suppliers are progressively locked out. In chip design, domestic alternatives for AI accelerators and server CPUs have moved from early-stage to commercially viable, with several constituents turning profitable in recent years. The gap to the leading edge remains wide, particularly in advanced lithography and the most cutting-edge logic nodes, but the trajectory across mature nodes, equipment, and design is clearly upward. That said, VanEck China Semiconductor ETF (“SMHC” or the “Fund”) seeks to track the MarketVector™ China Semiconductor 25 Index (the “Index’), providing rules-based exposure to 25 of the largest and most liquid Chinese semiconductor companies across the full value chain. The Fund is designed to deliver comprehensive coverage of the domestic build-out, not to make active calls on which segment offers the best opportunity at any given moment. Investors get exposure to the entire ecosystem, from design and fabrication to equipment and packaging, in a single, passive vehicle.

2.      The MarketVector China Semiconductor 25 Index requires companies to derive at least 50% of revenue from semiconductors or semiconductor equipment. How do holdings such as Eoptolink, WUS Printed Circuit, and Victory Giant qualify as semiconductor-focused companies?

Index constituent eligibility, including the determination of whether a company meets the revenue purity threshold, is made by MarketVector Indexes GmbH (“MarketVector” or the “Index Provider”) as the index provider. MarketVector uses a variety of data sources in that assessment, and their methodology governs which companies qualify for inclusion. What the Index is designed to ensure, at a structural level, is that every constituent derives the majority of its revenue from semiconductors or semiconductor equipment. That screen is intended to keep the portfolio focused on companies with genuine exposure to the domestic build-out, rather than diversified technology conglomerates with incidental chip revenue. For those three names specifically, the Index Provider has determined that the companies make more than 50% of their revenue from semiconductor or semiconductor equipment.

3.      The index excludes sanctioned companies, including SMIC. Given SMIC's central role in China's semiconductor ecosystem, how should investors think about what SMHC captures—and what it leaves out?

As a US-registered investment adviser, VanEck is required to comply with all applicable US regulations, including sanctions restrictions. As such, SMHC excludes SMIC from its holdings. In addition, the Index may exclude certain companies due to foreign ownership limits or sanctions. Globally listed funds operating under different regulatory frameworks may include those names, but that is not an option available to a US-domiciled product. Within those constraints, VanEck believes SMHC offers the most comprehensive benchmark exposure to China's semiconductor industry available to US investors. The domestic build-out spans far more than any single company, covering equipment, chip design, packaging, and materials, and the Index is designed to capture that full opportunity set. SMIC's absence reflects a regulatory reality, not a gap in the investment thesis.

4.      If a portfolio holding is added to the US Entity List between rebalances, what is the process and timeline for its removal, and what impact could this have on trading costs and tracking difference?

Sanctions-related decisions are handled on a case-by-case basis, as the specific restrictions imposed can vary meaningfully depending on the designation. In some instances, US investors are permitted to sell existing positions but prohibited from acquiring additional shares. In those cases, MarketVector would likely remove the company from the Index at its next scheduled rebalance, and the Fund would trade accordingly. In other cases, US investors are given a hard deadline to divest, which would likely prompt an off-cycle removal from the Index, requiring the Fund to rebalance ahead of the regular schedule.

In all cases, MarketVector, as the index provider, aims to maintain an index that reflects the opportunity set available to US investors under applicable regulations. On the fund side, any unscheduled rebalance may introduce some friction, including wider spreads on forced trades, potential market impact, and some degree of tracking difference relative to a clean rebalance. The Index methodology is designed with regulatory responsiveness in mind, and the Fund is built to execute against it efficiently.

5.      Cambricon and Hygon account for about 16% of the portfolio, while the top 10 holdings make up nearly 60%. How should investors view this concentration, and how do the index's weighting caps manage concentration risk?

SMHC is designed to provide targeted exposure to the 25 largest and most liquid publicly traded Chinese semiconductor companies, so some degree of concentration in the largest names is a natural feature of that construction, not a flaw. The companies at the top of the Index tend to be there because they are the most scaled, most liquid, and most directly exposed to China's domestic build-out.

The Fund is classified as a non-diversified fund under the Investment Company Act of 1940, as amended (the “Investment Company Act of 1940”), and, therefore, may invest a greater percentage of its assets in a particular issuer. The Fund may concentrate its investments in a particular industry or group of industries to the extent that the Index concentrates in an industry or group of industries.

At the same time, the Index’s weighting scheme is has designed so that all components with more than 50% exposure production of semiconductors and/or production of semiconductor equipment that exceed 4.5% but at least the largest five and at the maximum the largest 10 of these components are grouped together (“Large-Weights”). For such large weights, the maximum weight for any single security is 20% and the minimum weighting is 5%. Those guardrails are built into the Index rules to manage concentration at the margin while preserving the targeted, pure-play character of the exposure.

6.      How does SMHC differ from the VanEck Semiconductor ETF (SMH)? What exposure does it provide that investors would not already get through SMH or a broad China equity fund?

SMHC and VanEck Semiconductor ETF (SMH) have zero holdings overlap. SMH tracks the largest global semiconductor companies, which are predominantly U.S. and Taiwan-listed names across fabless design, equipment, and foundry. Chinese semiconductor companies do not appear in that universe in any meaningful way.

The overlap with broad China equity funds is similarly limited. SMHC's holdings represent approximately 3.03% of the MSCI China Index by weight, reflecting the fact that broad China strategies are dominated by internet platforms and financials, with semiconductor companies representing a small and often incidental allocation. An investor holding a broad China fund is getting very little of what SMHC is designed to deliver.

The result is that SMHC offers exposure that is genuinely additive to both. Investors with existing semiconductor allocations through SMH are capturing the U.S. and Taiwan side of the global chip industry. SMHC captures the domestic Chinese build-out, a separate ecosystem with different companies, different drivers, and different policy tailwinds. The two can sit alongside each other in a portfolio without meaningful redundancy.

7.      As SMHC invests in China A-shares that trade outside US market hours, how should investors think about premium/discount risk, and what guidance would you give retail investors on trading the ETF?

Because SMHC holds China A-shares that trade on local exchanges outside of US market hours, there will naturally be periods where the ETF is trading on a US exchange while the underlying securities are not actively pricing. This creates the potential for premiums or discounts to NAV, which is a common feature of ETFs with foreign-held assets.

One important nuance is the distinction between NAV and intraday market price. The Fund's NAV is calculated by the administrator using fair value pricing, which adjusts local market closing prices to reflect information that has emerged after the Chinese market has closed, such as moves in US-listed Chinese ADRs, broader market events, or macroeconomic developments. The ETF'sintraday market price may therefore reflect a different view of the underlying portfolio than the priorday's official NAV, and that gap does not necessarily represent a mispricing.

For retail investors, the practical guidance is straightforward. Avoid trading at the open, when spreads tend to be widest and price discovery is still settling, use limit orders rather than market orders to control execution price, and be aware that an apparent premium or discount may reflect fair value adjustments rather than a genuine arbitrage opportunity.

8.      What is the key bear case for SMHC if China's semiconductor expansion results in overcapacity or AI-related capital expenditure slows? Which segments of the portfolio would likely be the most resilient?

The bear case is real and worth acknowledging. State-directed investment at the scale China is deploying has historically produced overcapacity, and a slowdown in AI-related capital expenditure could reduce near-term demand for both domestic chips and the equipment used to manufacture them. If fabrications overbuild relative to end demand, equipment orders slow, utilization rates fall, and the revenue growth that has driven Index constituent market caps higher could compress meaningfully. These are legitimate risks that investors should weigh.

That said, a few structural features of the opportunity set provide some buffer. Localization mandates and procurement rules that direct state-owned enterprises, telecoms, and data centers toward domestic suppliers are policy-driven rather than purely demand-driven, which creates a degree of revenue visibility that is less sensitive to global capex cycles. Companies supplying into that captive buyer base may prove more resilient than those exposed to discretionary or export-facing demand.

Ultimately, however, SMHC seeks to track an index. The Fund is not positioned to rotate defensively into more resilient segments or reduce exposure to names facing cyclical headwinds. Investors get rules-based, comprehensive exposure to the 25 largest and most liquid Chinese semiconductor companies across the full value chain. The portfolio will reflect both the upside of the domestic build-out and the downside risks that come with it.