China is also being cut off from more & more technology by western governments. This will stall the development of their tech sector including AI and may force China to be more self-reliant in chip manufacturing. Here is the latest. Biden to cut China off from more Nvidia chips, expand curbs to more countries https://www.reuters.com/technology/...chips-expand-curbs-more-countries-2023-10-17/ The Biden administration said on Tuesday it plans to halt shipments to China of more advanced artificial intelligence chips designed by Nvidia and others, part of a suite of measures aimed at stopping Beijing from getting cutting-edge U.S. technologies to strengthen its military. The rules, described by senior administration officials in a press briefing on Monday evening, restrict a broader swathe of advanced chips and chipmaking tools to a greater number of countries including Iran and Russia, and blacklist Chinese chip designers Moore Thread and Biren. The two Chinese startups were founded by former Nvidia employees in China and aim to compete with the U.S. AI chip giant. The new measures aim to hamper China's military development by closing loopholes in regulations released last October and will probably be updated "at least annually," according to Commerce Department Secretary Gina Raimondo. The goal is to limit China's access to "advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to (Chinese) military applications," she said, stressing the administration was not seeking to hurt Beijing economically. The United States and China are locked in a years-long technology war, but the sweeping curbs released last October further escalated tensions between the superpowers. CHINA-ONLY CHIPS HIT Top AI chip designer Nvidia (NVDA.O) has made chips such as the A800 and H800 that walked right up the line of the previous rules to continue selling to China, and AMD (AMD.O), also impacted by the rules, has said it plans a similar strategy. Nvidia's business has soared since the imposition of last year's rules because its China-only chips are still better than alternatives. The Silicon Valley firm is currently selling almost every chip it can procure as worldwide demand outstrips supply, but would be hurt in the long term as Chinese chip firms seek to fill any voids left by U.S. companies. Nvidia's A800 and H800 chips will be hit by the new regulations, due to a change in chip parameters aimed at capturing a greater number of chips. But the rules will exempt most consumer chips used in laptops, smartphones and gaming, though some will be subject to licensing and notification requirements by U.S. officials. "The fact is, China, even after the update of this rule, will import hundreds of billions of dollars of semiconductors from the United States," Raimondo said, emphasizing that the goal of the measures was not to hammer U.S. companies. The previous rules imposed a two-pronged test that measured both a chip’s computing performance and its ability to communicate with other chips, an important measure in AI supercomputers where thousands of chips are strung together to chew through huge amounts of data. Nvidia and Intel (INTC.O) created special chips for the Chinese market that retained the powerful computing capabilities but limited communications speeds to stay inside the previous rules. The rules released on Tuesday eliminate the communication speed limits and focus on computing performance, which will have the effect of halting sales of Nvidia's A800 and H800 chips for the China market, according to a senior administration official. U.S. officials on Tuesday added a new measure to restrict chips that exceed a certain level of "performance density," a measure focused on how much computing power can be packed into a given amount of silicon, a senior administration official said. The senior administration official said this rule was meant to prevent companies from trying to work around restrictions on full chips by using a technology called "chiplets," where firms could try to join together small pieces called chiplets into a large chip that violates the rules. Reuters reported in July that chiplets have become a core part of China’s technology strategy to advance its chip industry, and analysts have said that Chinese companies could use the technology to evade U.S. restrictions. LICENSING EXPANDED The new measures also expand licensing requirements for exports of advanced chips to more than 40 additional countries that present risks of diversion to China and are subject to U.S. arms embargoes, the officials said. That measure appears to build on a letter received by Nvidia in August that it described as restricting shipments of its A100 and H100 chips beyond China to other regions including some countries in the Middle East. Confirming a Reuters report, chips will be barred from being sent to units of firms located anywhere in the world if their parent companies are headquartered in China, Macau and other arms embargoed countries. The move is part of a bid to keep the chips from being illegally smuggled into China or remotely accessed by Chinese parent companies. The Biden administration also hit 21 countries outside China with a licensing requirement for chipmaking tools and broadened the list of equipment barred from going to that country. Officials took pains to stress that Chinese officials were warned the rules were coming by National Security Advisor Jake Sullivan, Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo, confirming a prior Reuters report.
I am shocked to read 140 countries went to Beijing yesterday for the BRI meeting. Mind you there are only 195 countries in the world, probabaly all of them went except the whites. China sat at the head of the table. Sands are shifting, better have a completely setup in the so-called Global South.
Don’t Rule Out a Financial Crisis in China Extensive fiscal and financial imbalances have taken China, its leadership and the world into uncharted territory By Greg Ip Updated Oct. 19, 2023 12:03 am ET The International Monetary Fund envisions China’s growth averaging 4% over the next four years, down from its projection of 4.6% a year ago. PHOTO: CFOTO/ZUMA PRESS The world’s second largest economy has a deflating property bubble, local governments struggling to pay their debts and a banking system heavily exposed to both. Anywhere else these factors would be seen as precursors of a financial crisis. But not in China, conventional wisdom goes, because its debts are owed to domestic rather than foreign investors, the government already stands behind much of the financial system and capable technocrats are on top of things. Conventional wisdom might be dangerously out of date. True, an imminent meltdown like the global panic that followed Lehman Brothers’ failure in 2008, is highly unlikely. Yet China’s fiscal and financial imbalances are so large that they have taken the country—and, because of its size, the world—into uncharted territory. We simply don’t know how well the Chinese economy, and a leadership now concentrated in the hands of President Xi Jinping, can navigate these strains. The scale of the problem emerges from a series of reports issued last week by the International Monetary Fund. Budget deficits excluding interest, share of GDPSource: International Monetary FundNote: Data after 2022 are projections ProjectionsEmerging markets ex.ChinaChinaAdvanced economies ex.U.S.U.S.024681012%2019'20'25 First, while China reported a stronger than expected economic growth of 4.9% in the year through the third quarter, its medium-term outlook has plainly deteriorated. The IMF sees the country’s growth averaging just 4% over the next four years, down from its projection of 4.6% a year ago. This makes it far harder to grow out of its debts than when growth was 10%, over a decade ago. Second, the IMF has also boosted projections of Chinese government deficits, which they now see swelling from 7.1% of gross domestic product this year to 7.8% in 2028. Among major economies only the U.S. comes close, which isn’t exactly reassuring. NEWSLETTER SIGN-UP Real Time Economics The latest economic news, analysis and data curated weekdays by WSJ's Jeffrey Sparshott. Subscribed The problem isn’t with the central government but local governments that borrowed heavily via off balance-sheet financing vehicles to fund urban development projects. Their liabilities now equal 45% of GDP and including them in China’s government debt would vault the total to 149% of GDP by 2027, above Italy’s at 141%. Local Chinese governments have struggled to service their debts as land sales, a primary source of revenue, have dried up. Indeed, the IMF estimates 30% of local government financing vehicles are “non viable without government support.” This is a big problem for China’s banks, who hold roughly 80% of that debt. Just half the cost of restructuring that debt would saddle them with impairment charges of $465 billion—chopping 1.7 percentage points off the ratio of loss-absorbing capital to assets, the IMF estimates. Chinese banks, relative to their global peers, aren’t that well capitalized to start with. And a recession would deplete that capital significantly, as stress tests the IMF conducted on banks around the world illustrate. For China, the IMF simulated an adverse scenario in which growth averages 1% instead of 5% for three years and property values decline. The result: Chinese banks’ capital ratios would plummet from 11% last year to 7.1% in 2025, the worst of any region under the stress tests. Bank capital ratios in baseline forecast and under adverse economic scenarios* Euro area 16 % Baseline 14 12 Adverse scenario 10 2022 ’23 ’24 ’25 U.S. 14 % 12 10 2022 ’23 ’24 ’25 China 12 % 10 8 6 2022 ’23 ’24 ’25 Note: Tier 1 Common Equity Source: International Monetary Fund There’s also the potential for feedback loops: As loan losses mount, banks lend less. Local governments, unable to borrow, slash investment and social services. Economic growth and property values weaken further. How likely is any of this? Financial crises in Latin America in the 1980s, southeast Asia in the 1990s and the euro area in the 2000s were greatly amplified by the exodus of foreign capital. By contrast, China is a net lender to the world and tightly controls inflows and outflows of capital. Its debts are owed to itself. Chinese banks are also mostly owned or controlled by the central or local governments that would presumably not let them fail, precluding bank runs and panics. In China’s last bout of banking trouble 20 years ago, bad loans were transferred at par value to state asset-management companies. But sometimes financial crises occur because local, not foreign, investors flee. Nor are they always fast and violent, like the global financial crisis from 2007 to 2009. Some unfold over years as occurred in Spain in the 1970s, the U.S. (with its savings-and-loan institutions) in the 1980s, and Sweden and Japan in the 1990s. The origins of China’s big debts are in many ways a textbook case of moral hazard. Developers and local governments were able to borrow so much because lenders assumed Beijing would bail them out. But that assumption is based on implicit, not explicit guarantees, and that ambiguity is potentially destabilizing. Logan Wright, director of China research at Rhodium Group, a research firm, said a financial crisis in China wouldn’t originate with an external shock or sudden revaluation of assets to reflect lower market prices. Instead it would happen when investors who assumed the government stood behind their assets learn that it doesn’t. “Financial markets then need to reprice these risks rapidly,” he said. SHARE YOUR THOUGHTS What could a Chinese financial crisis mean for the global economy? Join the conversation below. For example, “The property sector was previously considered too big to fail, until Beijing’s own policy priorities were suddenly perceived differently. Then credit risks emerged very quickly as more and more developers’ finances were viewed more skeptically.” As the government’s implicit backing is withdrawn from peripheral assets, investors might assume it no longer applies to core assets such as small banks, mortgage loans and then local governments, Wright said. “That’s the potential path to crisis.” he said. Chinese officials are well aware of these risks and have taken tentative steps to restructure local government debts and prod troubled developers to finish projects. But the debts are too large and growth too slow for China to sweep bad loans under the rug as it did 20 years ago, said Martin Chorzempa, a China expert at the Peterson Institute for International Economics. He also worries that under Xi, the quality of governance has deteriorated. “I’m concerned about an exodus of talent, a reduction in economic indicators being published, a reduction in space in China for economic debate. Those things all make me concerned they might not be getting the full picture.” What does this mean for the rest of the world? A multiyear financial quagmire that depresses Chinese consumer confidence would sap demand for imports while swelling exports, pressuring foreign producers. And while contagion is circumscribed by the limited connections between China’s financial system and the rest of the world’s, that system is still, in absolute terms, gigantic. Should it start to flail, the shock waves seem certain to be felt, somehow, abroad.
This problem of this kind of analysis is that LGFV debts are not marked and not tradable, and not sold to the foreigners. Only way is to refinance out, i.e., borrow and repay. We only look at their real estate as a bomb but China doesn’t have property tax and capital gains tax. If they were to collect even 25bps for all the houses, revenue can beef up local finances right quick. Since they are a communist country, taxing is not a way to govern.
Chinese investors sold off $21.2 billion of US bonds and stocks in August, the most in four years, fueling speculation that authorities may be preparing to defend a weakening yuan. My read is that they are redoplying the funds for other projects, i.e. buying long term commodities contracts from Brazil and Russia. Weaker Yuan is good for their exports.
They basically have no social safety net (healthcare etc.), declining aging population. Almost all of Asia (other than LittleKimmyLand) despises and/or fears them. And just like the former USSR have to spend, spend, spend to keep up with the US militarily. What could go wrong .... more.
"all of them went except the whites." Uhh whites? How about except all the multi-cultural. Ya know, the ones with all the wealth. On the flip side all those who DID go had their hand out. Shocker!!
I agreed they are all “poor” for now but who isn’t relatively speaking. Real wealth is created by manufacturing, not trading papers. An upscale apartment in Bangkok is about $250k with all the amenities and services one would want. Probably costs more in Shanghai, a lot more expensive in Singapore and Dubai. Co-locating is least of the issues. Recently went for a trip and came back to JFK, there is only one “family” bathroom in a carrousel area in terminal 7, the queue was so long the kids were crying. Small facility upgrade will go a long way.
not sure about that. china's average life expectancy is higher than that of the us. I suppose the asians knew how to take care of themselves once getting old. no fatty food...
Really? So Foxconn is valued more than Apple. Didn't think so. As for chitty JFK, it is poor example to use. Besides money is not made by who has the best airport(s) or especially with airlines themselves. Its the azzes in the seats of the planes that matter. And we still have the most valuable lol asses.