The following is the video transcript for 'China Update' published 20 November 2021. It contains material quoted from other sources.
US-China: Semiconductor Wars
First up let’s discuss the on-going technology competition, also known by some as a technology decoupling, between the US and China by examining a tale of two chip companies from this week.
The first is South Korea’s SK Hynix.
This week we learned through reported leaks that U.S. officials are seeking to prevent SK Hynix from undertaking a multi-billion dollar retooling of a huge China based facility so it can more efficiently make more advanced memory chips.
The company plans seek to upgrade the facility with advanced (EUV) chipmaking machines made by the Dutch firm ASML, a firm reported to already being enjoying over one billion USD in sales in China per annum.
The second company is US semiconductor maker Intel Corp.
Intel also had a plan to expand China based operations, and we also learned this week that these plans have been put on hold due to concerns from Washington, though this pause happened back in August.
The plan had been to take over an abandoned factory of Global Foundries in the southwestern city of Chengdu, Sichuan, to ramp up its semiconductor production in China.
US media is reporting that the plans were rejected by the White House.
So we can see that US officials are more proactively seeking to prevent advanced chip manufacturing technology from going to China, this has been the case for some time now. However, the massive pull of the Chinese market, the biggest market for chip manufacturing in the world, means that many companies will likely increase lobbying efforts in Washington too.
Delta Outbreak Update
The months long Delta outbreak may be stabilising this week, with official local case numbers down from the 100s to the dozens each day, and with new cases now only appearing in a few locations rather than dozens across the country like last week. However, officials are not out of the woods yet, as negligence or plain bad luck could result in another expensive and disruptive outbreak.
Officials in the capital city are not taking any chances however, with Beijing’s domestic travel restrictions tightening further this week.
On Tuesday, flights to Beijing from provincial capitals of provinces that have what are considered mid- or high-risk regions, which is quite a few at this point, were limited to one per day with less than 75 percent occupancy. And all flights from middle- or high-risk areas have all been cancelled.
Since Tuesday all people who wish to enter the capital must present a Covid test and a green health code, a type of Coivid passport.
China, Climate, and Coal.
Next up, let’s talk about China’s coal production and power shortage.
International media this week is reporting that according to officials at the recent Glasgow Climate conference, there was a last minute demand from China and India to water down language in the Glasgow Climate Pact. China wanted to replace the wording “phase out” with “phase down” in relation to coal power.
This resulted in the final pledge incorporating this change to “phase down” rather than “phase out”
Meanwhile, we learned this week from data published by the National Bureau of Statistics, China’s output of coal in October saw its highest monthly increase in 6 years. China is currently the world's biggest producer and consumer of coal.
There is some positive news on the coal front, however.
On Wednesday,the State Council, China's cabinet, announced that China will set up a special facility worth over $31 billion USD to support transitioning to the cleaner and more efficient use of coal.
While we are on coal, let's touch on the power shortage situation.
On the same, Premier Li Keqiang told the foreign executives at a special meeting that the China’s shortage of electricity and coal has been “effectively resolved”, and future supply is also secure. While the energy shortage has improved since last month, it would be a mischaracterisation to say that it has been completely resolved, especially in the north.
National Anti-Monopoly Bureau
China's newly established so-called National Anti-monopoly Bureau opened in Beijing on Thursday. The head of this new bureau is also the deputy head of China's top market regulator, the State Administration of Market Regulation. So, this new Bureau will have teeth.
The bureau’s responsibilities include drafting and implementing anti-trust regulations, as well as, “helping Chinese companies deal with anti-trust charges overseas.”
On the same day the State Administration of Market Regulation published a “guidance document for enterprises on anti-monopoly compliance” which includes following, “overseas anti-monopoly compliance risks” and providing, “antitrust risk management”
Evergrande Crisis Update
And last up, Evergrande has had another bad week. Let’s go through the crisis-hit developer’s developments from the last few days.
On Wednesday, according to a Hong Kong stock exchange filing the following day, China Evergrande, exited its stake in internet company HengTeng Networks Group, raising US$273 million.
Hong Kong-based HengTen is principally engaged in film and television production, distribution and online streaming platforms.
Evergrande held a majority stake in the company 12 months ago, but has had to sell down its holdings in recent months, we remember that just two weeks ago Evergrande sold about $170 million USD in shares in the internet company to meet that week’s interest payment deadline. It now owes none of the company.
Evergrande faces more deadlines next week on overdue interest for domestic and overseas debt, with one offshore deadline for US$135 million due on November 23, as well as an onshore payment for 118 million RMB (about 20 million USD) due on November 26.
If it makes next weeks’ payments, in December, Evergrande has another approximately 300 million USD in payments to make, most for offshore debt. But that is still nothing, the best test comes next year when over $3.5 billion dollars becomes due for U.S. dollar-demoniated debt over the two months of March and April.
It’s been reported this week that Evergrande founder and chairman Hui Ka-yan injected more than 1 billion USD of his personal wealth into the company to meet financial obligations, but this is just a drop in the bucket.
There is deep concern from international financial analysts that Evergrande is going to collapse.
On Thursday, S&P Global Ratings analysts said in a report that “We still believe an Evergrande default is highly likely." Observing "The firm has lost the capacity to sell new homes, which means its main business model is effectively defunct. This makes full repayment of its debts unlikely."
And there isn’t much confidence for the rest of the property sector either.
This week too, Moody’s expressed in a research note that it expects Corporate bond defaults in the Chinese property sector to continue to rise in 2022.