Connect with us

Emerging Markets

US chokehold pushes China chip self-sufficiency up the agenda

Published

on


When China’s Communist party delegates meet on Monday to thrash out their economic plan for the next five years, the semiconductor industry will be high on the agenda.

Beijing’s 30-year push to build a homegrown chip sector has taken on a new sense of urgency as Donald Trump’s administration tightens its chokehold on China’s leading technology groups.

Washington has barred companies worldwide from manufacturing chips for Huawei, the telecoms business, in what is a potential death sentence for its affiliate HiSilicon, China’s largest chip designer. The US has also restricted American companies from supplying Semiconductor Manufacturing International Corporation, China’s most advanced chipmaker, with the machines needed for making chips.

Experts and industry executives believe that even with China set to pour another $1.4tn into its technology sector by 2025, this targeted US effort to strangle the country both on supplies of semiconductors and the means to fabricate them makes Beijing’s push to develop the domestic chip sector much more difficult.

China’s efforts to develop its semiconductor sector in the past prioritised “basic building blocks” such as chip manufacturing, packaging and testing, said Randy Abrams, head of Asian technology research at Credit Suisse. “But now they need to try to become less reliant on the US where they can.”

Semiconductor revenues

Beijing’s priorities now include boosting its technological prowess in electronic design automation (EDA) — the software used in chip design — and in making the machines deployed in chip fabrication plants. US EDA tool makers Cadence and Synopsys have a stranglehold on the global market for advanced chips, while Applied Materials, Lam Research and KLA Tencor dominate critical segments of cutting-edge chip manufacturing equipment.

Analysts said that in semiconductor equipment and EDA, China is today where Huawei and ZTE were in the late 1990s, a low-cost provider still lagging behind overseas peers in technology. “The gap is not only about a certain dollar amount, you also need the time to develop the experience and talent,” said Mr Abrams. 

The tools offered by Huada Empyrean, China’s most advanced EDA company, are significantly behind the capabilities required by SMIC, China’s biggest chipmaker, and chip industry leader Taiwan Semiconductor Manufacturing Corporation to make their most advanced products.

“Making a breakthrough in semiconductor equipment is the biggest hurdle,” said Zeng Guan-wei, an analyst at research firm Trendforce, who added that fewer than 10 per cent of these machines used in China are made by domestic companies.

Equipment makers were no more than an afterthought in Beijing’s past spending sprees for the sector — and those were massive. According to the Semiconductor Industry Association, Chinese chipmakers have been handed about $50bn in subsidies just from the central government over the past 20 years. That is 100 times the amount received by companies in Taiwan, which alongside South Korea is the world’s largest chip manufacturing hub.

Semiconductor manufacturing capacity by country

An OECD study of 21 chipmakers worldwide identified four Chinese companies among the largest recipients of state funding. The OECD found that SMIC and Tsinghua Unigroup, one of China’s leading chip design houses which has now also invested in production, received state support totalling more than 30 per cent of their revenues between 2014 and 2018.

Despite that, China’s chip production has fallen far short of meeting the country’s needs. According to the China Semiconductor Industry Association, only 27 per cent of chips sold in the country were made domestically, with the remainder covered by imports.

Beijing has committed to invest heavily as part of its response to pressure from Washington, in addition to new tax incentives for chipmakers. The 14th Five-Year Plan is expected to bring more support.

But some warn that China needs to recalibrate the way it supports the industry.

“I think funding is not a problem now,” said an engineer at SMIC. “But how will these support funds be distributed? Will some of the relatively backward but key parts for the chip industry in China get more attention, such as EDA or manufacturing equipment?”

For example, he added, software experts could make much more money working at internet companies than at EDA ones.

The industry has also suffered because of inefficiency. Over the past three decades, hundreds of chip projects have failed because of investors lacking the required technical knowledge or after having redirected subsidies into unrelated property projects.

The promise of more government support for the industry could actually worsen the situation. In the first nine months of 2020, more than 13,000 Chinese enterprises registered as chip companies, even though many have no prior industry experience.

The National Development and Reform Commission, China’s chief state planning body, said this week the latest push should focus on preventing such waste.

“There seems to be a tendency in China that enterprising people seize upon the opportunity to cast themselves as patriotic investors when there is nationalist rhetoric,” said Douglas Fuller, a professor at Hong Kong City University and an expert on China’s industrial policy in the chip sector. “I am hearing again and again how bad things are in most other sectors, so the prospect of big funding in the chip sector works like a magnet.”



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Emerging Markets

Central banks seek out riskier assets for reserves in yield drought

Published

on

By


Central bankers who manage foreign currency reserves have been turning to new — and riskier — investments to compensate for the global collapse in bond yields ushered in by the pandemic, according to a new survey.

The annual poll of 78 reserve managers with a combined $6.4tn of assets found that the reduction in yields has presented the greatest challenge to these investors over the past year. For many, it has driven a shift into new asset classes including corporate bonds, emerging market bonds and equities.

Reserve managers are typically among the world’s most risk-averse investors, but they enjoy huge clout thanks to the more than $12tn they manage, according to the most recent IMF figures. This cash, accumulated by central banks to keep their currencies steady or to protect them in times of crisis, is generally parked in safe assets such as short-term government debt.

However, the survey carried out by Central Banking Publications suggests the pressure of low returns is forcing some to take on greater risk to preserve their capital. Bond yields around the world plummeted to record lows last year as central banks slashed interest rates and launched huge debt-buying programmes to combat the fallout from the pandemic. Although yields have since rebounded, they remain very low by historical standards.

Just over half of respondents to the survey said they were considering investing in new asset classes, while 44 per cent said they might add new currencies to their holdings. According to the IMF, 59 per cent of the world’s $12.7tn of foreign exchange reserves is held in US dollars, with most of the rest in euros, yen or sterling.

The survey also found that 42 per cent were considering inflation-linked bonds and 23 per cent were looking at adding to their holdings of gold.

Another reserve manager from the Americas said they had increased holdings of Chinese bonds, inflation-linked bonds and gold, adding “we are always willing to look into opportunities to make our reserves more efficient in terms of risk/ return”.

Central banks, like many investors, have been struggling with falling bond yields for the past decade, resulting in a global “hunt for yield” that has buoyed riskier assets. Many of the safest bonds offer negative returns once inflation is taken into account, while in Japan and the eurozone negative nominal yields are also commonplace.

The survey highlights “the challenge of capital preservation faced by the large number of reserve managers who hold predominantly short duration portfolios in highly rated government securities”, said Bernard Altschuler, head of central bank coverage at HSBC.



Source link

Continue Reading

Emerging Markets

Israel conflict rattles rapprochement with Arab countries

Published

on

By


When the United Arab Emirates shocked the Arab world by normalising relations with Israel it said the move would help ease the protracted Arab-Israeli conflict. But nine months later, the wealthy Gulf state finds itself in a difficult position as its newest ally bombards the impoverished Palestinian territory of Gaza.

Israeli war planes and artillery have been pounding Gaza while Hamas, the group that controls the territory, has fired rockets into Israel. On Sunday morning, death toll in Gaza stood at 181, including 83 women and children, local health officials said.

Ten people have died inside Israel, including two children, local medics have said.

While almost a third of Arab countries now have relations with Israel, this week’s bloodshed shows that diplomatic ties ushered in by last year’s so-called Abraham Accords have given them little leverage and done nothing to ease the root cause of the protracted crisis — the Jewish state’s conflict with the Palestinians.

“They [the UAE] are clearly in a very difficult position. On one hand, the UAE’s interests with Israel are long term and strategic, so ideally their relations should be resilient to shocks,” said Cinzia Bianco, a visiting fellow at the European Council on Foreign Relations. “At the same time, the UAE obviously claimed that the Abraham Accords would give them leverage to also support the Palestinians and rein in Israel’s aggressions against them.”

So far, Israel has rejected all international efforts pushing for a ceasefire. But Bianco said Abu Dhabi could still deploy diplomatic leverage to pressure the Jewish state to limit the scale of its retaliation. Such intervention, however, could jeopardise progress on joint projects of strategic value to the UAE, she added. 

Recent collaborations include plans for Emirati and Israeli defence manufacturers to develop a system to counter drones.

The normalisation of relations between Israel and the UAE under the Abraham Accords was quickly followed by similar moves from Bahrain, Sudan and Morocco, that marked a radical departure from the established Arab stance towards the Jewish state.

The Arab position before the accords was that they would recognise Israel only if there was a just settlement with the Palestinians that led to the creation of a viable Palestinian state. The transactional deals brokered by the Trump administration, which pursued an overtly pro-Israel stance, left the Palestinians feeling isolated and betrayed. Critics said Arab states had given up a bargaining tool and gained little in return, warning the moves would be exploited by more militant Palestinian factions.

Like other members of the Arab League, the UAE endorsed an appeal on Tuesday to the International Criminal Court to “investigate war crimes and crimes against humanity” committed by Israel against the Palestinians.

“The UAE stands with the rights of Palestinians, for the end of the Israeli occupation and with a two-state solution with an independent Palestinian state with East Jerusalem as its capital,” said Anwar Gargash, diplomatic adviser to the UAE president, this week. “This is a historic and principled position that does not budge.”

The UAE foreign ministry was last month quick to condemn Israeli plans to evict Palestinians from their homes on land claimed by Israeli settlers. And when clashes broke out between armed Israeli police and rock-throwing Palestinian youths, the UAE urged Israeli authorities to reduce tensions.

The UAE’s clear public stance has given cover for Emiratis and residents in the autocratic state to condemn Israeli actions and express support for the Palestinians, after any local anger at the earlier decision to normalise relations was suppressed at the time. Apart from a fringe of Emirati online activists who have sided with Israel, most social media reaction — even from some ministers — has been pro-Palestinian.

“Normalisation [of relations] is irreversible but it is very difficult to defend and even talk about in these circumstances,” said Abdulkhaleq Abdulla, a Dubai-based political science professor.

After the UAE signed its accord, there was speculation about whether Saudi Arabia, Israel’s main prize, would follow suit. Like Abu Dhabi, Riyadh has been covertly co-operating with Israel on intelligence and security matters as they share the goal of countering Iran.

But this week’s Israeli assault on Gaza makes that appear ever more remote. Saudi foreign minister Prince Faisal bin Farhan on Sunday said the kingdom “categorically rejects the Israeli violations against Palestinians”, while calling for an immediate ceasefire. 

In Morocco, which established relations with the Jewish state in October in return for US recognition of Moroccan sovereignty over the disputed territory of Western Sahara, the foreign ministry said it was watching events “with deep concern”.

In 2014, during the last major war between Israel and Hamas, thousands of protesters, including government ministers, took to the streets across Rabat, the capital. This time Moroccan police dispersed a small pro-Palestinian protest in the city this week. The newly formed Morocco-Israel Business Council was also reported to have postponed a virtual meeting aimed at encouraging Moroccan investment in Israel.

Public sentiment in the Arab world remained strongly pro-Palestinian, said HA Hellyer, senior associate fellow at the Carnegie Endowment for International Peace. “The absence of protests isn’t an absence of the desire to protest but an absence of permission to protest.”

Restrictions on freedom of speech across the region made it harder to gauge the extent of public anger, Hellyer said, but social media and the extensive coverage on mainstream television showed the “Palestinian question” was still close to Arabs’ hearts.

“Almost half of the messages I received on Thursday for the religious festival marking the end of Ramadan, show pictures of the Dome of the Rock in Jerusalem,” he added.



Source link

Continue Reading

Emerging Markets

Chilean voters prepare to elect country’s constitutional legislators

Published

on

By


Chile will this weekend vote in the legislators who will draw up its new constitution, with the country’s centre-right government facing a battle to maintain its grip on power ahead of a presidential election in November.

Gubernatorial, mayoral and municipal polls that were postponed because of the pandemic will also take place on Saturday and Sunday, alongside the election to populate the constitutional assembly.

Chile has not been spared the coronavirus second wave that has hit Latin America despite it having the highest vaccination rates in the region. Confirmed infections reached their highest ever level last month, although numbers have since declined.

“Chile is doing several historic and unprecedented things at the same time . . . in the middle of the economic and health crisis brought on by Covid-19,” said Robert Funk, a political scientist.

The most important vote will select members of the constituent assembly charged with rewriting the constitution drawn up during the 1973-90 dictatorship of General Augusto Pinochet — which most Chileans regard as illegitimate.

Nearly four-fifths of voters opted in favour of reforming the constitution in a referendum in November.

“These elections will probably define Chile’s institutional course over the coming decades,” said Gloria de la Fuente of Chile’s transparency council. “The vote will have a profound effect on Chile’s political system and civil society . . . electing the authorities to bring the country’s agenda forward.”

Yet turnover is predicted to be lower than the referendum. Some 58 per cent of Chileans who took part in a recent Ipsos poll said they were less likely to vote due to the pandemic, while less than half knew they would be voting for four different positions.

Chile has in recent decades become one of Latin America’s wealthiest nations, even if the deep inequality that sparked widespread social unrest in 2019 is far from resolved.

The low approval ratings for President Sebastián Piñera since those demonstrations have been exacerbated by defeats for his government in Congress, notably over pensions reform.

While the leftwing coalition that dominated Chile for most of the past 30 years has disintegrated since Piñera returned to power in 2018, his unpopularity could allow the left and centre-left to secure the two-thirds majority in the constituent assembly required to pass each article of the new document.

“If the right gets more than 30 per cent [in the assembly], it will be a tremendous victory,” said Lucia Dammert, a sociologist at the University of Santiago.

Despite the relative success of its vaccine rollout, Chile has been hard hit by the coronavirus crisis. Last summer’s peak of a weekly average of 352 daily cases per million was surpassed last month, reaching 383. Cases have since fallen back to about 280 cases per million.

However, Piñera’s government has been able to offer more generous Covid-related subsidies than most other countries in the region.

A feature of this weekend’s polls has been the emergence of independent candidates, Dammert said. Yet although the traditional parties had been badly wounded by the political turmoil, it would be “an uphill battle” for the independents to gain recognition, she said.

There are also wild cards such as Pablo Maltes — husband of Pamela Jiles, a populist presidential hopeful — who is running for governor of the metropolitan region of the capital Santiago.

“If Maltes wins, then there’s definitely something going on with Jiles,” said Funk, as it would suggest she was a strong contender for the presidency.

Jiles, who has championed measures to withdraw funds from Chile’s vaunted private pension system, is one of a number of presidential hopefuls, with no single candidate on the right or left enjoying a clear lead.

Electoral reform under the previous leftwing government of Michelle Bachelet that increased proportional representation means Chileans will for the first time also elect regional governors in a country where power has traditionally resided firmly in Santiago. The elections will also renew nearly a third of local authorities.



Source link

Continue Reading

Trending