October 13, 2022 | Semiconductors, China Internal Politics
Thoughts, Questions, Current Events
The global semiconductor industry is grappling with the implementation of the Biden administration’s recent export controls intended to curtail the development of all facets of China’s domestic semiconductor industry.
In geopolitical terms, it’s logical to view US export controls specifically targeting China as part of a broader containment policy to preserve the core features of US global dominance and the rules-based order.
Considerable debate exists over whether the United States’ policy towards China over the past half-decade constitutes a policy of containment; especially if we use the term in the strict US-USSR Cold War context.
In this case, it is our view that US export controls indeed represent the implementation of a broader American containment policy designed to prevent China from obtaining regional hegemony in the Asia Pacific region.
The second-order consequences of semiconductor export controls and their broader impact on the global semiconductor industry and supply chains are unclear.
It’s critical to follow the strategic response of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s most valuable semiconductor company, the largest pure-play semiconductor foundry, and arguably the most geopolitically important private corporation on Earth.
According to Nikkei Asia, TSMC Chief Executive Officer and Vice Chairman CC Wei indicated US export controls are “manageable.”
"Our initial reading and feedback from our customers [is that] the new regulation set the control threshold at a very high-end specification, which is primarily used for AI or supercomputing applications. Therefore, our initial assessment is [that] the impact to TSMC is limited and manageable," said Wei. "We are closely monitoring the situation to ensure we comply with all the rules and regulations."
Increased economic and regulatory risk notwithstanding, the second-order consequences concerning geopolitical risk and the impact US export controls will have on US-China relations are also uncertain.
It’s unclear whether US actions most reflect US geopolitical weakness or PRC geopolitical strength.
Does the current United States policy towards China constitute containment?
If Chinese President Xi Jinping’s term ended today, how would PRC citizens react? How will Xi Jinping’s legacy hold up over time?
Biden Is Now All-In on Taking Out China (Foreign Policy)
The United States has waged low-grade economic warfare against China for at least four years now—firing volley after volley of tariffs, export controls, investment blocks, visa limits, and much more. But Washington’s endgame for this conflict has always been hazy. Does it seek to compel specific changes in Beijing’s behavior, or challenge the Chinese system itself? To protect core security interests, or retain hegemony by any means? To strengthen America, or hobble its chief rival? Donald Trump’s scattershot regulation and erratic public statements offered little clarity to allies, adversaries, and companies around the world. Joe Biden’s actions have been more systematic, but long-term U.S. goals have remained hidden beneath bureaucratic opacity and cautious platitudes.
British Official Stresses Threat From China Even Amid Russian Aggression (New York Times)
A top British intelligence official will warn in a speech on Tuesday that while Russia’s aggression has created an urgent threat, China’s expanding use of technology to control dissent and its growing ability to attack satellite systems, control digital currencies and track individuals pose far deeper challenges for the West.
Analysis: China faces its "Sputnik" moment as US export curbs deal a blow to its chip ambitions (Reuters)
The measures are set to undermine China's efforts to develop its own chip industry aimed at reducing its reliance on foreign-made chips. China consumes more than three quarters of the semiconductors sold globally, which hit $556 billion in 2021, but produces around 15% of global output.
"The tech decoupling could serve as China's Sputnik moment in innovation, forcing it to take a top-down and self-reliance approach, especially in semiconductors," Citi economists said in a note, likening it to the surge in spending and research seen in the United States after the Soviet Union's launch of the world's first satellite.
US Chip Sanctions ‘Kneecap’ China’s Tech Industry (Wired)
Last month, the Chinese ecommerce giant Alibaba revealed a powerful new cloud computing system designed for artificial intelligence projects. It is used by Alibaba’s cloud customers to train algorithms for tasks like chatbot dialogue and video analysis, and was built using hundreds of chips from US companies Intel and Nvidia.
Last week, the US announced new export restrictions that will make future projects like that unlikely. The Biden administration’s rules forbid companies from exporting advanced chips needed to train or run the most powerful AI algorithms to China.
The sweeping new controls are designed to keep the country’s AI industry stuck in the dark ages while the US and other Western countries advance. The restrictions also block the export of chipmaking equipment and design software, and ban the world’s leading silicon fabs, including Taiwan’s TSMC and South Korea’s Samsung, from manufacturing advanced chips for Chinese companies.
TSMC gets 1-year U.S. license for China chip expansion (Nikkei Asia)
China Internal Politics
Rare protest against China’s Xi Jinping days before Communist Party congress (CNN)
A rare protest against Chinese leader Xi Jinping and his policies was swiftly ended in Beijing Thursday, just days before he is set to secure a third term in power at a key meeting of the ruling Communist Party.
Photos circulating on Twitter Thursday afternoon show two banners hung on an overpass of a major thoroughfare in the northwest of the Chinese capital.
“Say no to Covid test, yes to food. No to lockdown, yes to freedom. No to lies, yes to dignity. No to cultural revolution, yes to reform. No to great leader, yes to vote. Don’t be a slave, be a citizen,” reads one banner.
“Go on strike, remove dictator and national traitor Xi Jinping,” reads the other.
China Monetary Policy
China central bank pauses monetary easing, partially rolls policy loan, keeps rate unchanged (reuters)
China's central bank partially rolled over maturing medium-term policy loans while maintaining the interest rate as expected on Thursday, as hawkish U.S. Federal Reserve tightening limited room to manoeuvre monetary policy to support the economy.
The pause in monetary easing came as the yuan bears increasing downside pressure after the People's Bank of China (PBOC) surprised markets in August by lowering key rates, a move that further widened policy divergence with other major economies that are raising rates aggressively.
China Turns to Controversial Loan Tool for Policy Bank Funding (Bloomberg)
China used a controversial tool to inject funds into policy banks for the first time in more than two years, as Beijing increasingly relies on the semi-official lenders to support the economy while monetary easing is constrained by rising global interest rates.
The People’s Bank of China added a net 108.2 billion yuan ($15.2 billion) in Pledged Supplemental Lending last month for China Development Bank, Agricultural Development Bank of China, and Export-Import Bank of China, according to a statement posted by the central bank over the weekend. That marked the first monthly increase in the tool since February 2020 and took the outstanding value of PSL to 2.65 trillion yuan.
China's independent monetary policy offers buffer against risks from US rate hike: analysts (Global Times)
The Chinese mainland's financial markets remained relatively stable on Thursday in the wake of an overnight US interest rate hike that injected fresh volatility into global markets, thanks to the country's independent monetary policy and increasingly mature abilities to counter risks, analysts noted.
China's independent policy direction also offers a buffer for the global economy, which is suffering from the negative impact of dollar volatility, while China's own financial stability makes yuan assets safer for overseas investors, they said.
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