Data Source – World Bank
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Chinese stocks continue to be highly reactive to the ebbs and flows of Beijing’s zero-COVID policy, as well as civilian protests against extended lockdowns. In particular, news from Foxconn’s Guangdong factory rattled Chinese stocks when workers there went on a rampage protesting lockdowns that kept workers confined to crowded living quarters.
Shares prices continued to be quite volatile.
As of November 15, 2022, the NASDAQ Golden Dragon China Index was up 39.5% of its October 25 low of 4,410.
As noted in our research report covering the Commerce Department’s Bureau of Industry and Sanctions’ updated Export Administration Regulations (EAR), US semiconductor companies now have significant limitations with regard to advanced GPU chips used for super-computers and AI. “Advanced” is defined as supporting more than 300 teraflops (300 trillion floating point operations per second) and an interconnect speed of more than 600 GB/second (i.e. the data transfer rate between GPU’s and CPU’s).
China is the world’s largest market for semiconductors produced by US manufacturers and one of the largest of those is NVIDIA – approximately 26.4% of its projected $26.91B in 2022 sales will come from China. Not all of that $7.11B Chinese market revenue is at risk from the updated sanctions – in fact, Jensen Huang, CEO of NVIDIA, remains upbeat about his company’s future prospects in China and recently noted that the majority of its customers in China would not be affected by the sanctions.
The company’s A100 and H100 chips are covered by the new sanctions – they are NVIDIA’s fastest chips and are used for AI applications. Although these models represent slightly less than $400M in sales in China, they nevertheless triggered investor concerns that NVIDIA’s exposure from the updated sanctions might be greater than the 6% reported in its latest quarterly earnings call.
On November 7, 2022, NVIDIA announced a new advanced chip, the A800, that has been specifically designed for the Chinese market. The A800 is a derivative chip based on the A100, which can no longer be sold to Chinese customers.
The primary difference between the A100 and A800 is chip-to-chip transfer speed – the A100 transfer rate is 600GB per second, while the A800 transfer rate is 400GB per second. For large-scale super-computing and AI applications that use thousands of chips in tandem, this is a material difference.
On November 16, 2022, NVIDIA reported FY2023 Q3 results:
In the Q3 earnings call, the company’s CFO commented:
During the quarter, the U.S. government announced new restrictions impacting exports of our A100 and H-100 based products to China, and any product destined for certain systems or entities in China. These restrictions impacted third quarter revenue, largely offset by sales of alternative products into China [emphasis SINOLOGIX]. That said, demand in China more broadly remains soft, and we expect that to continue in the current quarter.
Jen-Hsun Huang, NVIDIA’s CEO, further elaborated on risk to NVIDIA’s China market revenue:
The A800 hardware ensures that it always meets U.S. government’s clear test for export control. And it cannot be customer reprogrammed or application reprogrammed to exceed it. It is hardware limited.
We raised the concern about the $400 million of A100s because we were uncertain about whether we could execute. The introduction of A800 to our customers and through our supply chain in time.
We interpret his comments to mean that NVIDIA, as well as other US chip manufacturers, will comply with the letter of the law, but will nevertheless aggressively adjust product lines to meet the demands of the Chinese market.
In what may have been a coordinated decision with the US Department of Commerce, on November 9th, 2022, the Federal Ministry for Economic Affairs and Climate Action of Germany (BMWK) blocked the sale of two semiconductor companies to subsidiaries of mainland Chinese companies. However, the rationale for these actions was not framed in terms of preventing China from gaining access to advanced chip technology for super-computer and AI applications. Rather, the German government is seeking to prevent the exodus of core technologies from the German economy.
The first company in question is Elmos Semiconductor SE, a wafer manufacturer, which was slated to be sold to Silex Microsystems AB, a Swedish subsidiary of Sai Micro Electronics Inc, of Beijing. Sai Micro, listed on the Shenzhen Exchange, lost 8.84% in the days after the German BMWK announced it would block the sale of Elmos Semi.
The second company whose sale was blocked was not initially publicly announced, but further inquiries revealed it is ERS Electronic GmbH, a Bavarian-based manufacturer of cooling systems for the semiconductor industry.
The recent updates to the US Commerce Department’s Bureau of Industry and Sanctions’ Export Administration Regulations (EAR) can only be enforced with US companies and companies using US components. Therefore, the Biden administration has used indirect influence to pressure its allies into supporting the sanctions against China’s semiconductor industry, as well as other restrictions that would limit China’s ambitious efforts to acquire minority or controlling stakes in international operations.
It’s quite likely that these efforts contributed to Germany’s decision to block the sale of Elmos and ERS to Chinese interests.
In addition, as part of China’s Belt and Road Initiative, Chinese companies have acquired interests in, or have secured contracts to operate, major port facilities in Europe. Cosco Shipping Holdings recently acquired a 24.9% stake in one of Hamburg’s four port operations. The US is seeking to limit Beijing’s ability to acquire controlling interests in these kinds of businesses.
Elmos develops, produces and markets semiconductors, primarily for use in the automotive industry. Its components communicate, measure, regulate and control safety, comfort, powertrain and network functions. It products enable advanced features, such as ultrasonic distance measurement, ambient light and intuitive HMI. Elmos is publicly traded and is headquartered in Dortmund, Germany.
ERS is an industry leader in thermal management solutions for semiconductor manufacturing. Its core product line is thermal wafer test technology. ERS is privately held and headquartered in Munich, Germany.
Sai Micro Electronics Inc. designs, develops, manufactures, and markets GNSS (global navigation satellite system) technology extensions and GNSS system integration solutions. The Company produces GPS(global position system) receivers, enclosures, antennas, inertial navigation systems, and others. Sai Micro Electronics also produces microelectronic devices.
On November 3, 2022, Sai Micro reported FY2022 Q3 sales of €119.6M, a 48.0% increase YoY, and is guiding for total FY2022 sales of €440M.
A number of factors have converged to incentivize the construction of high-tech fabs in the US.
First and foremost, the Biden administration is seeking to reverse a decades-long trend that has seen advanced semiconductor manufacturing move overseas, mostly to Taiwan, South Korea, and other destinations in Asia. The CHIPS Act has committed $52B in seed money to reverse this trend by encouraging major fab companies to build next-gen chip factories in the US.
Equally important is the risk mitigation component – as the issue of Taiwan’s incorporation in mainland China (or conversely, its independence) has heated up, the obvious risk to Taiwan’s semiconductor sector has become a major concern for the collective supply chain, as well as Western governments whose economies and militaries depend on advanced sub-10nm chips produced by TSMC. In August 2022, TSMC Chair Mark Liu told CNN that if China were to invade Taiwan and seize the world’s most advanced chip factories, it would cause devastating supply chain disruptions worldwide.
Finally, the recently updated Export Administration Regulations (EAR) has highlighted the risk, or at least the probability, that the mainland Chinese semiconductor sector will accelerate efforts to enhance China’s competitive position, which would put further pressure on US manufacturers.
Taiwan Semiconductor Manufacturing Co (TSMC), as well as Intel and Samsung, previously responded to these factors by committing $12B to build a 5nm fab outside of Phoenix, AZ. It recently announced tentative plans to build a second facility, presumably a 3nm fab, for an additional $12B.
On the one hand, TSMC pretty much owns the market for sub-7nm chips and these two plants would manufacture some of the most advanced 3nm and 5nm chips on the market – these chips would nominally be used for super-computing and AI applications.
On the other hand, TSMC needs to carefully balance the long-term lead time to build these extremely complex factories with a softening economic situation. While its first AZ plant will come online in 2024, it has not made a final decision on the second plant.
Headquartered in Hsinchu, Taiwan, Taiwan Semiconductor Manufacturing Company Limited (TSMC) is the largest pure-play semiconductor foundry in the world. Its customers are a who’s who list of the leading fabless chip companies, including AMD, Apple, ARM, Broadcom, Marvell, MediaTek, Nvidia, Allwinner, HiSilicon, Spectra7, and NISOC.
TSMC is the industry leader in sub-10nm chip manufacturing and has successfully developed manufacturing techniques for 5nm and 3nm semiconductors. It has expanded operations outside of Taiwan in the US, China, Singapore, and Japan and has a global capacity of 13M 300 mm wafers.
Of note – TSMC has two foundries in mainland China – a 200 mm 28nm plant in Shanghai and a 300 mm 28nm plant in Nanjing.
TSMC has had a compound annual revenue growth rate (CAGR) of 17.4% since 1994. It is traded on the NYSE under the symbol TSM. FY2021 global revenue was $56.84B and FY2022 global revenue is projected to be $70.44B.
From time to time, SINOLOGIX offers third-party content that complements our core focus. The authors we endorse are subject matter experts and thought leaders in their respective fields. We strive to offer a diverse range of perspectives on any given topic and these contributors help us achieve that objective.
“Annual Reports - Taiwan Semiconductor Manufacturing Company Limited.” TSMC, https://investor.tsmc.com/english/annual-reports.
Investments, Khaveen. “Nvidia Stock: U.S. Restrictions Lower Revenue Growth by 5% (NASDAQ:NVDA).” SeekingAlpha, Seeking Alpha, 27 Sept. 2022, https://seekingalpha.com/article/4543196-nvidia-us-restrictions-lower-revenue-growth-by-5-percent.
King, Ian. “Nvidia to Sell New Chip in China It Says Meets US Export Ban.” Bloomberg.com, Bloomberg, 7 Nov. 2022, https://www.bloomberg.com/news/articles/2022-11-08/nvidia-to-sell-new-chip-in-china-it-says-meets-us-export-ban.
McBride, Courtney. “US Warns Germany, Other Allies against Allowing Chinese Control.” Bloomberg.com, Bloomberg, 2 Nov. 2022, https://www.bloomberg.com/news/articles/2022-11-02/us-warns-germany-other-allies-against-allowing-chinese-control.
Nellis, Stephen. “Nvidia CEO Sees 'Large Space' for China Sales despite U.S. Restrictions.” Reuters, Thomson Reuters, 21 Sept. 2022, https://www.reuters.com/technology/nvidia-ceo-sees-large-space-china-sales-despite-us-restrictions-2022-09-21/#:~:text=Nvidia%20said%20Sept%201%20that,in%20its%20current%20fiscal%20quarter.
Nienaber, Michael. “Germany Blocks Two Chip Facility Sales to Chinese Investor.” Bloomberg.com, Bloomberg, 9 Nov. 2022, https://www.bloomberg.com/news/articles/2022-11-09/germany-blocks-sale-of-elmos-chip-facility-to-chinese-investor.
Wang, Cindy. “TSMC Prepares for Another Us Plant as China Tensions Simmer.” Bloomberg.com, Bloomberg, 9 Nov. 2022, https://www.bloomberg.com/news/articles/2022-11-09/tsmc-to-unveil-plans-for-another-major-us-chip-plant-wsj-says.
Recent news coverage in western media suggests that US sanctions against China’s semiconductor sector have caught the CCP and mainland industry leaders off guard. In this research article, we examine this issue in the context of the global supply chain to analyze the short-term and long-term impact of US sanctions and the implications for both China and key industry players.
Data Source – World Bank
Data Source – World Bank
Data Source – World Bank
Western media is starting to pay attention to China’s efforts to influence members of the so-called Global South, or more specifically the BRICS+ and Shanghai Cooperation Organization (with substantially overlapping membership), to denominate international trade in the Chinese Renminbi (RMB), aks the Chinese Yuan (CNY) and/or other local currencies. For very different reasons, Russia has promoted the idea of an entirely new currency for trade settlement. This is an accelerating trend among countries that have formed close economic and political relationships with China.
Coincident with the pivot to the RMB for trade settlement is a growing sentiment among the BRICS+ and SCO members that holding USD as their primary reserve currency poses a risk in the event the US declares sanctions and/or freezes a country’s assets, as happened with Russia and Belarus in 2022.
The combined effect of these two trends should be observable in a country’s US Treasuries holdings, and that’s exactly what we’re seeing in the chart above – China’s USD and Treasuries holdings peaked at $1.277 trillion in 2013 and declined by more than 32% in 2022.
Things change “slowly at first, then all at once”...
The so-called “de-dollarization” phenomenon is really a reflection of China’s ascendancy to superpower status – there can be no question it is the main driver behind the emergence of increasingly powerful inter-regional economic organizations, innovative trade agreements that circumvent the USD’s role as the world’s primary currency for trade settlement, and conceivably, the demise of the USD as the world’s de facto reserve currency. In this Part 1, we summarize the key factors that might trigger a future change in currency usage by China and its trading partners.
Style too own civil out along. Perfectly offending attempted add arranging age gentleman concluded. Get who uncommonly our expression ten increasing considered occasional travelling. Ever read tell year give may men call its. Piqued son turned fat income played end wicket. To do noisy downs round an happy books. Ought these are balls place mrs their times add she. Taken no great widow spoke of it small. Genius use except son esteem merely her limits. Sons park by do make on. It do oh cottage offered cottage in written. Especially of dissimilar up attachment themselves by interested boisterous. Linen mrs seems men table. Jennings dashwood to quitting marriage bachelor in. On as conviction in of appearance apartments boisterous.
As the multi-polar Global South movement accelerates, there is now a consensus that the time is right for strategic alternatives – banks, financial messaging systems, and possibly even a new currency. In this Part 03, we examine recent changes to the financial infrastructure proliferating amongst BRICS+ and SCO+ members.
While China is a driving force in the Global South’s pivot away from the USD, the rapid expansion of inter-regional economic organizations made up of Asian, Central Asian, Middle East, African and Latin American countries has accelerated the shift in political and economic power that threatens to upend more than 70 years of US dominance on the world stage.
The so-called “de-dollarization” phenomenon is really a reflection of China’s ascendancy to superpower status – there can be no question it is the main driver behind the emergence of increasingly powerful inter-regional economic organizations, innovative trade agreements that circumvent the USD’s role as the world’s primary currency for trade settlement, and conceivably, the demise of the USD as the world’s de facto reserve currency. In this Part 1, we summarize the key factors that might trigger a future change in currency usage by China and its trading partners.
Recent news coverage in western media suggests that US sanctions against China’s semiconductor sector have caught the CCP and mainland industry leaders off guard. In this Part 2 of our two-part series on China’s semiconductor market, we do a deep(er) dive on the mainland Chinese chip sector, examine the Chinese government’s strategic plan to decouple China’s reliance on western technology suppliers, and evaluate the outcomes of that strategy.
A recap of mainland China, APAC, and international news items – this week, we look at the markets’ initial reactions to US sanctions on the transfer of advanced semiconductor technology to China.
Recent news coverage in western media suggests that US sanctions against China’s semiconductor sector have caught the CCP and mainland industry leaders off guard. In this research article, we examine this issue in the context of the global supply chain to analyze the short-term and long-term impact of US sanctions and the implications for both China and key industry players.
As the multi-polar Global South movement accelerates, there is now a consensus that the time is right for strategic alternatives – banks, financial messaging systems, and possibly even a new currency. In this Part 03, we examine recent changes to the financial infrastructure proliferating amongst BRICS+ and SCO+ members.
There’s been a flurry of articles since chatGPT was first released that try to make sense of the burgeoning problem of plagiarism at colleges (and even high schools). But this is entirely the wrong issue…
While China is a driving force in the Global South’s pivot away from the USD, the rapid expansion of inter-regional economic organizations made up of Asian, Central Asian, Middle East, African and Latin American countries has accelerated the shift in political and economic power that threatens to upend more than 70 years of US dominance on the world stage.
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Hey there…just a friendly heads up. We’re working as fast as we can to add the latest in AI, data visualization and other technologies that we provide as part of our web design services. Thanks for your patience while we update this site.
Hey there…just a friendly heads up. We’re working as fast as we can to add the latest in AI, data visualization and other technologies that we provide as part of our web design services. Thanks for your patience while we update this site.
This page has been published with content that is still a work-in-progress. We thought you might be interested in viewing an early release, even though it’s not a final product. Thanks for your patience…
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