China to meet AI market demand with local chips

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China is going to rely more on the use of local artificial intelligence (AI) chips than foreign chips, as it can no longer obtain Nvidia’s most-advanced chips due to the United States’ chip export controls.

The country does not lack AI chip makers, which include Huawei Technologies, Moore Threads, Cambrian and Stream Computing.

Their total shipment will reach 1.34 million units in 2023, up 22.5% from last year, according to the International Data Corporation (IDC), a market intelligence provider.

However, technology experts said a lot more has to be done before Chinese AI chips can become popular.

Lin Yonghua, vice president and chief engineer at the Beijing Academy of Artificial Intelligence, said China should develop some technology frameworks that enable servers to use different kinds of AI chips at the same time.

He said such a move can help resolve the nation’s AI chip shortage problem. He said there’s reason to hope that more and more of China’s data centers will shift to use local AI chips.

Robust market growth

China’s AI server markets will grow 82.5% to US$9.1 billion yuan this year, according to a report published by IDC and Inspur Electronic Information Industry Co Ltd during the annual AI Computing Conference (AICC) in Beijing on November 29.

The figure will increase to US$13.4 billion yuan in 2027, 47% up from the 2023 level, said the report.

The compound annual growth rate of China’s AI computing power will be 33.9% in 2022-2027, compared with the 16.6% annual growth of traditional computing power.

IDC said the global AI server markets will grow from US$19.5 billion in 2022 to US$34.7 billion in 2026. Globally, servers that can create AI-generated content (AIGC), including texts, images, songs and videos, will account for 31.7% of all servers in 2026, up from the current level of 11.9%. 

ChatGPT, launched by the Microsoft-backed OpenAI in November 2022, is a form of generative AI. November 30 marked the one-year anniversary of the debut of ChatGPT.

After seeing the success of ChatGPT, many Chinese companies have increased their investments in chatbots over the past year. They include the companies collectively called BAT – Baidu, Alibaba and Tencent – as well as Huawei Technologies. 

Baidu is based in Beijing while Tencent and Huawei are in Shenzhen. Huawei and Suzhou Industrial Park (SIP), a China-Singapore cooperation area, co-founded the Huawei (Suzhou) Artificial Intelligence Innovation Center. Alibaba has its headquarters in Hangzhou. 

The top five cities in terms of AI investments are now Beijing, Hangzhou, Shenzhen, Shanghai and Suzhou. In 2018-2022, the top five were Beijing, Hangzhou, Shanghai, Shenzhen and Guangzhou. 

Zhou Zhengang, a vice president of IDC, said many Chinese companies are interested in investing in generative AI services while two thirds of these firms have already made their investments.

He said many Chinese internet firms and telecom operators have also started building their AI computing centers. He said as of August this year, China has AI computing centers built in 30 cities with a total investment of 20 billion yuan (US$2.82 billion). 

Competing with humans

In August last year, the Biden administration ordered US chipmakers to stop exporting to China or Russia graphic processing units (GPUs) that operate at interconnect bandwidths of 600 gigabytes per second or above. 

Due to this rule, Nvidia could not ship its A100 and H100 chips to China. It then unveiled the A800 and H800 processors, which work at 400 and 300 gigabytes per second respectively, targeting the Chinese markets.

On October 17 this year, the US tightened its rules, making Nvidia unable to ship its A800, H800, L40, L40S and RTX 4090 chips to China.

Reuters reported on November 9 that Nvidia planned to release three AI chips, namely H20, L20 and L2, for China’s markets. But reportedly, on November 24, the company delayed the launch of H20 to the first quarter of 2024. 

Technology experts said the H100 is 6.68 times faster than the H20 in general. At the same time, the H20 is 20% faster than the H100 in large language model (LLM) reasoning. 

LLMs are deep learning algorithms that can recognize, summarize, translate, predict and generate content using very large datasets, according to Nvidia’s website.

Nvidia Chief Executive Jensen Huang said at an event in the US on Wednesday that AI will be “fairly competitive” with humans in as few as five years. 

Huang said the rising competition in the AI industry will lead to the launch of more off-the-shelf AI tools that companies in different industries will tune according to their needs, from chip design and software creation to drug discovery and radiology.

Fastest AI supercomputer

While it’s uncertain that Chinese firms can import the H20 chips next year, their US counterparts meanwhile are using Nvidia’s most cutting-edge chips. 

On November 28, Amazon Web Services (AWS), a subsidiary of Amazon, became the first cloud service provider to use Nvidia’s GH200 NVL32 multi-node platform, which connects 32 Grace Hopper Superchips into one instance. 

AWS and Nvidia are partnering on Project Ceiba to design the world’s fastest GPU-powered AI supercomputer, which uses 16,384 GH200 Superchips and is capable of processing 65 exaflops of AI. The machine will be used by Nvidia for generative AI innovation. 

A GH200 NVL32 server can train a trillion-parameter model over 1.7 times faster than Nvidia’s HGX H100 server.

An unnamed chip industry expert told the China Securities Journal that Chinese AI chips are lagging behind foreign ones in terms of performance. However, he said, more and more Chinese firms are now willing to use Chinese AI chips or build hybrid servers with different chips due to the limited supply of foreign chips.

Liu Jun, senior vice president of Inspur Electronic Information, said Wednesday that the quality of China’s AI development will depend on the computing powers of AI servers. He said China needs to boost the computing power and processing efficiency of its AI servers in order to support more complex and large-scale AI applications in the coming few years.

Inspur is a state-owned AI server distributor that relies heavily on Nvidia’s chips. It has a more-than-50% share in China’s AI server market. Its customers include Baidu’s Ernie Bot.

The company said on November 27 that it will build its servers with chips made by a variety of companies. 

Read: Nvidia dumbs down AI chips for Chinese markets

Follow Jeff Pao on Twitter at @jeffpao3

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Export bans won’t fix India’s deep, dark agriculture woes

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The unpredictable nature of India’s agricultural sector highlights how quickly a country producing exportable surpluses can turn into one grappling with potential supply shortages in the domestic market. 

These supply shortages raise the prospect of food insecurity and food price inflation. In response, the government immediately clamped down on exports, beginning with staples like wheat and rice.

In April 2023, India celebrated a record-breaking agricultural export performance, which had surpassed US$42 billion in the preceding year. This level of exports exceeded the pre-pandemic record achieved in 2018–2019 by almost 48%. 

Rice exports had increased by over 15% and pulses by over 84%, while sugar exports were more than 25% above the previous year’s level. Such positive signs were seen as a major step towards the implementation of the 2018 National Agriculture Export Policy.

The bullish expectations on agricultural exports have all but disappeared in the first six months of the 2023–24 financial year. Except for basmati rice, all other major agricultural commodities, including non-basmati rice, pulses and sugar, registered negative export growth. 

Interestingly, this trend had set in even before the government banned rice exports in July 2023.

In August 2023, the government further restricted rice exports by imposing a 20% export tax on parboiled rice. With overall supplies of major food grains tightening, especially after a decline in the country’s wheat production during the 2022–2023 crop season, the government went into overdrive to control cereal prices, which registered a year-on-year price increase of over 8%.

High domestic prices for other agricultural commodities also influenced the government’s decision to clamp down on exports. Onion prices increased by 31% in August 2023 and by over 55% in September. In response, the government imposed a 40% export tax in August and set a minimum export price of $800 per metric ton, effective until the end of 2023.

An Indian farmer drying wet rice crop. Photo: Facebook

Similarly, sugar exports were restricted, allowing sugar mills to export only 6.2 million metric tons of sugar in the season ending on September 30, 2023. The quota, initially imposed until October 31, 2023, has since been extended indefinitely. 

In contrast, despite a 17% increase in the price of pulses in the month of September, the government did not impose any export restrictions to ease domestic supply shortages. Instead, it authorized the export of over 2 million tons of essential varieties like lentils and pigeon peas to stabilize the market for these commodities.

India’s efforts to curb the export of major agricultural commodities resulted in sharp increases in international prices of the targeted commodities. 

With the largest rice exporter withdrawing supplies from the international market, rice prices in global markets increased by nearly 25% between June and September 2023, while sugar prices shot up to their highest level ever. 

India’s primary export markets, especially those in its neighborhood, are concerned about the runaway prices that could result from export restrictions.

Several advanced countries have been critical of the series of sudden decisions that India has taken to curb exports. In a September 2023 meeting of the World Trade Organization Committee on Agriculture, a group of nine countries led by the United States pointed out that India’s export ban had adversely affected countries heavily reliant on imports. 

The affected countries, in their view, would be at risk of food shortages in such economically uncertain times.

The United States claimed that India’s export ban on non-basmati rice was an “unnecessary trade barrier” and demanded its immediate withdrawal. The United States based its criticism on information provided by the US Department of Agriculture, which estimated that India was likely to have a record rice production of 134 million tons in 2023–2024. 

But the US Department of Agriculture’s Rice Outlook later reported that rice production in India was projected to fall by 4 million tons in 2023–2024.

The Indian government’s response to supply shortages in key agricultural commodities was clearly aimed at countering increases in the prices of these commodities. With the next general election scheduled for May 2024, the government cannot afford food price inflation. 

A woman looks at an item as she shops at a food superstore in Ahmedabad, India October 13, 2016. Photo: Reuters, Amit Dave
A woman looks at an item as she shops at a food superstore in Ahmedabad, India October 13, 2016. Photo: Asia Times Files / Reuters

Several large states are also scheduled to go to the polls to elect new governments, heightening the political stakes. Political considerations also discourage the government from relying on imports to augment domestic supplies, as questions would arise about why a self-sufficient India is dependent on imports.

While the Indian government has its justifications for imposing export restrictions, it is vitally important to explore measures that could help prevent global food shortages. India needs to ensure that volatility in its agricultural production is addressed effectively.

Indian agriculture suffers from several disadvantages, not least crippling underinvestment. There is a need to revive the abandoned idea of creating regional food banks that could respond to the needs of net food-importing countries during production shortages.

Biswajit Dhar is Distinguished Professor at the Council for Social Development

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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China, Russia to be significant participants in COP28

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This week Dubai welcomes COP28, an annual UN conference on combating global warming. The significance of the climate-change issue is underscored by the fact that this October marked the hottest month ever recorded in the history of meteorological observations, and scientists predict that the year 2023 may set a new historical temperature record.

COP28 is taking place amid escalating geopolitical conflicts worldwide and a slowdown in global economic growth, partly due to changes in the energy market. Nevertheless, even contentious political issues such as US and EU protectionism regarding green goods from China, such as solar panels and electric cars, or economic sanctions against Russia, are being set aside.

Climate transcends politics. Preventing an increase in the average global temperature by more than 1.5 degrees Celsius by 2050 is a global imperative achievable only through international cooperation and coordinated efforts by all countries.

Sultan Al Jaber, the president of COP28, has stated that one of the summit’s tasks will be a “global inventory” of progress in fulfilling the commitments, nationally determined contributions (NDCs), that countries have undertaken within the framework of the Paris Climate Agreement.

He also emphasized the importance of fulfilling a long-standing commitment by wealthy nations, which historically accounted for the majority of greenhouse gas emissions, to provide US$100 billion annually to support poorer countries in their efforts to combat climate change and transition to renewable energy sources.

This year, China will be one of the most active participants in COP28. Despite the challenges posed by its rapidly expanding industrial output, President Xi Jinping committed in 2020 to achieving net-zero emissions by 2060.

The country is making significant strides toward this goal. China has led the world in electric-vehicle production for eight consecutive years and boasts the highest installed capacity of solar and wind power plants globally, aiming to surpass 1.2 billion kilowatts by 2030.

China is also assisting 40 developing countries, particularly in Africa and small island states, in addressing climate-change effects and adopting green energy solutions based on Chinese photovoltaics (solar panels).

Russian involvement

Russia will also be a significant participant in COP28, with a high-level delegation and its own pavilion at the conference. In October, President Vladimir Putin signed the Climate Doctrine outlining a concrete action plan to achieve carbon neutrality by 2060.

Many Russian companies are already at the forefront of implementing climate programs. For instance, Rusal is the world’s leading producer of low-carbon aluminum, much of which is supplied to China.

The state corporation Rosatom plays a crucial role in Russia’s climate agenda, not only operating nuclear power plants, which account for 20% of Russian electricity supply, but also constructing nuclear power facilities in other countries, promoting decarbonization.

SIBUR, a leading Russian producer of polymers and rubber, is also actively pursuing a climate strategy. SIBUR is the first Russian company to receive carbon units through the implementation of climate projects, which it monetizes in both domestic and international markets. 

In September, it was it was reported that SIBUR was in discussions with Chinese firms regarding the sale of carbon units. By purchasing carbon units in Russia, Chinese companies interested in supplying eco-friendly products to global markets can reduce their carbon footprint. As environmental regulations tighten worldwide, the volume of such transactions is expected to increase.

Russia established a national register of carbon units last year and is gradually developing a carbon-unit trading system. Trading carbon units provides economic incentives for investment in modernizing production and transitioning to green technologies.

Russia is drawing inspiration from China, where the carbon-unit trading market was established in 2021 and has already become the world’s largest, with a total transaction volume exceeding 365 million tons of carbon dioxide. Moreover, the price range for carbon units in China, ranging from 50 to 70 yuan ($7 to $11) per ton of emissions, is lower than in Europe.

While national carbon markets are important, the fight against climate change must be waged on a global scale. Thus carbon markets in different countries should ultimately become interconnected.

Pilot cross-border trade agreements are crucial steps in this regard. To achieve this, international validation, mutual recognition of carbon units from different countries, and the use of blockchain platforms that enable secure and legally significant transactions are required.

Russia’s SIBUR is collaborating with Chinese partners and plans to negotiate one of the pilot cross-border carbon unit sales in the coming months.

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Commentary: How Qatar became mediator in the Gaza war

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ALL-ROUND INTEGRATION

First, it has no history as a colonial power, so it comes with none of the baggage that inevitably accompanies peacemaking efforts by, say, Britain, France or the US. And, as a small Gulf state that doesn’t publicly align itself intimately with Washington, Moscow or Beijing, its mediation efforts are less likely to draw “great power” suspicion or criticism.

But – perhaps more importantly – Qatar’s position as regional mediator is a byproduct of its wealth management, investment capacity and its extensive and complex business connections, including personal connections in the Middle East, North Africa and particularly to the US.

The US is Qatar’s largest foreign direct investor. US exports to Qatar increased by more than 42 per cent between 2021 and 2022, totalling US$3.7 billion in 2019.

Neoliberal globalisation advocated for open markets, global distribution of production and deregulated financial markets. Qatar has wholeheartedly embraced this in its transition to a multi-faceted economy, no longer wholly dependent on revenue from hydrocarbon production.

It has been a success story. In per capita income, Qatar is now one of the top ten richest countries in the world and the wealthiest in the Arab world, with a per capita gross domestic product of US$88,046 compared to the US at US$75,269 and the United Kingdom at US$45,485.

Significantly, given the conflict in Ukraine which has highlighted the need for European countries to diversify their energy supplies, Qatar is the second largest exporter of liquefied natural gas (LNG) in the world, with some 85 per cent of its export earnings coming from hydrocarbons. Investing the resulting trade surplus in America government debt has led to mutual interdependency between its economy and that of the US.

The more the Qatari economy is intertwined with global supply chains, the more alert its diplomacy has become in providing solutions to thorny – especially regional – conflicts.

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PBOC’s Pan telling hard, uncomfortable truths

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At a moment of peak uncertainty about the direction of China’s economy, People’s Bank of China (PBOC) Governor Pan Gongsheng is surprising many by speaking in unusually direct terms.

Some of the ambiguity of the “Xi Jinping thought” era is a government big on soaring reform rhetoric and fuzzy on nuts-and-bolts specifics. It’s here where Pan’s burst of economic realpolitik is both refreshing and telling.

The bottom-line message: kindly give China some space and tolerance to pull off modern history’s greatest effort to transition away from property and infrastructure to new drivers of economic growth. Oh, and that period of 8-10% annual growth? It’s not coming back.

“The traditional model of relying heavily on infrastructure and real estate might generate higher growth, but it would also delay structural adjustment and undermine growth sustainability,” Pan told bankers in Hong Kong on Tuesday (November 28).

He added that “the ongoing economic transformation will be a long and difficult journey. But it’s a journey we must take.”

Pan went on to say that “China’s real estate sector is searching for a new equilibrium” to achieve “healthy and sustainable growth” of the “high-quality” variety.

Nor did Pan shy from discussing the biggest potential cracks in China’s financial system. He admitted, for example, that financially fragile regions in the west and north of the country may have “difficulties servicing local government debts.” Expect more defaults, in other words.

Such off-script admissions of turbulence to come are relatively rare in official Communist Party circles. Normally, the top-down impulse in the Xi era has been to project an image of economic omniscience and omnipotence. As such, Pan’s foray into straight talk is useful, intriguing and timely.

On Thursday, China’s National Bureau of Statistics released fresh signs that the manufacturing and services sectors shrank in November, fanning expectations for increased state support as the economy faces intensifying headwinds.

The manufacturing purchasing managers index dropped to 49.4 while non-manufacturing activity slid to weaker than expected 50.2.

Manufacturing data is down in a slowing Chinese economy. Photo: Asia Times Files / Imaginechina via AFP / Liang Xiaopeng

Granted, central bankers as a profession tend to speak in vague and non-committal ways. Obfuscation, in other words, is a monetary policymaker’s tool — their modus operandi — to keep all options open at all times.

A top practitioner of the discipline was Alan Greenspan, who chaired the US Federal Reserve from 1987 to 2006. As he once joked to a business forum: “If I’ve made myself too clear, you must have misunderstood me.”

Yet Pan is hardly playing rhetorical games as he telegraphs a long, bumpy road ahead. Naturally, this had PBOC watchers wondering if a new, more activist monetary strategy might be in store in Beijing.

Including, perhaps, a pivot toward quantitative easing (QE) with Chinese characteristics. Though the PBOC hasn’t officially gone the QE route, the central bank spent the last few months — Pan took the helm in July — expanding its balance sheet with aggressive lending to banks.

The PBOC’s total assets jumped 8.6% year on year in October to 43.3 trillion yuan (US$6.1 trillion), the biggest increase since at least 2014. Again, neither Pan nor his staff are talking explicitly about QE. And notable PBOC leaders of the past threw cold water on the prospects for Chinese QE.

In 2010, Zhou Xiaochuan, governor from 2002 to 2018, cautioned that QE policies, particularly in the US, were causing havoc globally.

In September 2021, Pan’s immediate predecessor, Yi Gang, warned that runaway, Japan-like asset purchases “would damage market functions, monetize fiscal deficits, harm central banks’ reputation, blur the boundary of monetary policy and create moral hazard.”

At the time, Yi said that “China will extend the time for implementing normal monetary policy as much as possible and there is no need for asset purchases.”

Yet the need for big asset purchases has gone full circle as China’s post-Covid rebound disappoints. China’s worsening property crisis is pushing the PBOC toward more assertive strategies to boost liquidity.

Some of this has been to absorb a boom in government bond issuance to add fiscal jolts to an ailing economy and to support green sector pursuits.

In a report earlier this week, the PBOC said it’s working to “unblock the monetary policy transmission mechanism, enhance the stability of financial support for the real economy, promote a virtuous economic and financial cycle, and keep prices reasonably stable.”

This has the PBOC mulling a strategy of providing upwards of 1 trillion yuan ($141 billion) in cheap financing for construction projects. Under Beijing’s Pledged Supplementary Lending (PSL) program, the PBOC will channel low-cost long-term liquidity to policy banks to boost lending to the infrastructure and housing sectors.

This plan is at least nominally QE-adjacent. Though more targeted than the QE employed by the Bank of Japan, which pioneered the technique in 2000 and 2001, and the Fed, the PBOC’s plan would make large-scale bond purchases behind the scenes aimed at depressing yields.

Economists can’t help but connect the dots and label this expansion of the PBOC’s balance sheet as “Chinese-style” QE.

Analysts are looking for signs of quantitative easing with Chinese characteristics. Photo: Facebook

“Beijing might have finally recognized the need to introduce quantitative easing or money printing for the collapsing property sector,” notes Nomura economist Ting Lu. “We believe Beijing will eventually need to reach into its own pockets, with printed money from the PBOC – such as PSL – to fill up the vast funding gap and secure the delivery of pre-sold homes.”

Economists at Goldman Sachs said in a recent note to clients “we think additional broad-based monetary policy easing is still needed to facilitate the large amount of government bond issuance and improve sentiment towards growth.”

It’s a controversial step, one that divides economists.

In an August note to clients, Robert Carnell, economist at ING Bank, warned that “QE would put the Chinese yuan under further weakening pressure, which it is very clear the PBOC does not want and would make it much harder for them to manage the yuan. It would also raise the risks of capital outflows, which they will also be keen to avoid.”

Count Carnell among economists who think the answer to China’s troubles lies with Xi’s reform team, not earlier PBOC policies. “As for government stimulus policies, these, we think, will tend to be along the lines of the many supply-side enhancing measures that we have already seen.”

Carnell adds that “the way through a debt overhang is not to print more debt, though it may be to swap it out for lower-rate central government debt, or longer maturity debt to ease debt service.

“Enhancing the efficiency of the private sector will also play a key role, though this and all the supply-side measures will take a considerable time to play out. The tiresome chorus clamoring for more stimulus is unlikely to stop in the meantime.”

This week, Xi made a rare visit to Shanghai just as his team unveiled a 25-point plan to reinvigorate private sector innovation and productivity.

Others argue that the end justifies the means. “Some traditionalists would argue that central banks should not engage in asset allocation, except through the interest-rate channel,” said Andrew Sheng at the University of Hong Kong.

“But QE has already proven to be a powerful resource-allocation tool capable of transforming national balance sheets. An innovative, well-planned QE program … could support China’s efforts to tackle some of the biggest challenges it faces,” he adds.

Like central banks in high-income countries after the 2008 financial crisis, “the PBOC could still avail itself of quantitative easing, with large-scale purchases of government bonds giving commercial banks more liquidity for lending,” notes Shang-Jin Wei, a former Asian Development Bank (ADB) economist.

Wei adds that “if the goal is to achieve higher inflation – as is the case in China today – there is no mechanical limit on the additional stimulus that can be applied to the economy through this channel.”

Wei channels Mario Draghi when he argues “China needs the ‘whatever it takes’ approach that the European Central Bank pursued a decade ago when it, too, was facing a debt-deflation spiral. The PBOC should publicly declare a strategy to monetize a big portion of government debt and to incentivize more private equity investment.”

Pan hasn’t done that, of course. And it’s debatable that he will. But as China grapples with an unprecedented property crisis, it will fall to the PBOC to grease the skids via liquidity as local governments dispose of bad debts.

The enterprise will echo the role the BOJ played in the early 2000s to facilitate the discarding of toxic loans undermining what was then Asia’s biggest economy.

Resolving local government debt troubles, made worse by an explosion of local government financing vehicles (LGFVs), is vital to stabilizing China’s $61 trillion financial sector while China Inc is already grappling with cratering real estate markets.

The idea, argues state-run Xinhua News, is to “optimize the debt structure of central and local governments” to improve the quality of national growth.

PBOC Governor Pan has markets dissecting his every move on rates. Image: BBC Screengrab

As China embarks on what Pan calls a “long and difficult journey” of disruption, the PBOC is on the frontlines. “Looking ahead,” Pan said, “China’s economy will remain resilient. I’m confident China will enjoy healthy and sustainable growth in 2024 and beyond.”

Yet as Pan just explained with unusual frankness, “China is experiencing a transition in its economic model” driven by a belief that “high-quality, sustainable growth is far more important” than rapid expansion.

Doing whatever it takes to get there may have China pivoting in ways most never expected – and in ways almost certain to unnerve global markets.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

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More than 190  Malaysian innovators level up and scale out with MRANTI

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Aided over 191 firms through 11 Sandbox programmes since 2020
NTIS enabled 27 tech firms to commercialise 27 products, yielding US$18.6m

The Malaysian Research Accelerator for Technology and Innovation (MRANTI) has significantly supported local innovators to advance their R&D and enter new markets, especially in the past 12 months. 
In 2023, the National Technology and…Continue Reading

More than 80% of Malaysia’s business leaders remain confident in globalisation and trade: Standard Chartered 

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74% of leaders note that global free flow of data has positive impact
78% state that global trade allows for sustainable development

A new white paper by Standard Chartered, Resetting Globalisation: Catalysts for Change, has revealed that 88% of global business leaders, including those in Malaysia, agree that globalisation is succeeding across the five underlying…Continue Reading

Tesla’s future riding on the Cybertruck

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In 2019, Tesla was in the happy position of being a high-volume, premium-priced leader in the global electric vehicle (EV) market. Deliveries of 367,500 cars represented 50% growth over 2018.

That included 92,550 of the mid-sized Model 3 cars and 19,450 of the larger Model S and X vehicles during the fourth quarter, implying strong future growth and producing annual revenue of US$$24.5 billion.

The same year, Tesla announced the Cybertruck. This new futuristic-looking vehicle represented the company’s first move into light/pickup trucks. Deliveries were initially planned for 2021.

Yet the Cybertruck has been beset with delays over things like the weight, making it difficult to achieve an adequate battery range, and the surging cost of bulletproof glass – it will now only be available as an add-on. Deliveries finally begin on November 30, meaning 2024 will be the first full production year.

Tesla has simultaneously been managing a difficult transition. Formerly a disruptive entrant rewriting the rules, it is now an incumbent trying to protect sales volumes and profit margins. A hectic growth strategy has seen a new gigafactory in Shanghai that started output in early 2020, plus two others near Berlin, Germany and Austin, Texas, which both opened in 2022.

In 2023, Tesla expects to sell 1.8 million vehicles overall, roughly double 2021 sales. But things can change very quickly in this industry, and Tesla faces different challenges in its three main markets of China, Europe and the US. The big question is whether the Cybertruck can resolve them.

Tesla unit sales 2016-23

Tesla unit sales by year
Statista

The market breakdown

In China, Tesla faces multiple competitors, a looming overcapacity in battery production, and changing government rules on incentives and purchase taxes. It has consequently been engaging in “dynamic pricing”, slashing the cost of Model 3s and Model Ys.

This has boosted unit sales, but Tesla is now a distant second behind Shenzhen-based BYD, in terms of hybrids and full EVs combined. Its EV share dropped from 15% in 2020 to 10% in 2022 and is still declining.

Tesla revenues by region (2022)

Chart showing total revenues by region

In Europe, Tesla has also been cutting prices in 2023, while broadly sustaining its volume-premium balance. This is the big challenge for any rising producer: producing in higher volumes reduces costs, but erodes exclusivity and therefore the ability to retain premium pricing.

By early 2023 Tesla had captured about 20% of the EV market, substantially outperforming both volume and premium rivals and increasing share by around 2 percentage points year on year.

The Cybertruck probably won’t unlock more growth in Europe, however. US pickups are a marginal product there, seen as unsuited to many European cities. Indeed, Paris is considering higher parking charges for EVs weighing over 2 tonnes, which would include the reputedly 3.3-ton Cybertruck.

Tesla vehicle sales by region (2022)

Tesla vehicle sales by region pie chart

It is in the US that this vehicle really matters. Again, Tesla cut prices significantly there in early 2023. The company’s ability to put pressure on rivals this way reflects its production experience and famous ownership of its supply chain. Tesla’s unit sales in the US are up 26% year on year, but like in China, it is losing share to competitors: down to 57% from 67% a year ago.

The US pick-up segment is important to Tesla’s efforts to retain its premium brand positioning by expanding its product portfolio. But pick-ups are also a vital source for the US “big three” manufacturers’ profitability. Non-EVs are dominated by Ford (F-series), GM (Chevrolet Silverado) and Stellantis (Dodge Ram).

Those incumbents have not wasted time since the Cybertruck was announced. Ford launched the F-150 Lightning in May 2021, and by 2024 expects output to be 150,000 units per year. The niche GMC Hummer EV pick-up was launched by GM in 2022. GM’s Silverado EV will also be on the market by mid-2024, as will the Dodge Ram in pure EV and range-extender formats.

Other disruptive new entrants have also been busy, although companies such as Lordstown Motors and Canoo have struggled. Most prominent, though still not profitable, is California-based Rivian with its R1T electric pick-up and R1S SUV variant. Rivian is expected to produce about 50,000 vehicles in 2023 overall.

Cybertruck prospects

Tesla has the luxury of a reported 2 million reservations for the Cybertruck, with a five-year waiting list. Nonetheless, the vehicle will test whether the company can continue combining volume with premium pricing.

There will now be two models, since the lowest-spec single-motor variant seems no more. The premium tri-motor Cybertruck will likely be priced at US$80,000. Some innovations in the two models, such as stainless-steel body panels, appear to be more marketing hype than engineering logic.

The styling is polarising, and may not appeal to a traditionally conservative segment. The performance claims are impressive but possibly unnecessary – the ability to tow 6.4 tonnes will rarely be useful.

YouTube video

[embedded content]

The Cybertruck will have a battery-technology edge for now, and access to the widespread and reliable Tesla supercharger network. Tesla aims to produce 200,000 units in 2024 and potentially 250,000 the year after. If that can be sustained, then the company will again have achieved premium positioning on a volume product.

At this stage, however, there are concerns. Early pre-production models were reported with multiple quality issues around the fit and finish, including large, variable panel gaps, and bubbles or other defects in the plastic film applied to the exterior panels.

Those in the industry may recall the Ford Edsel. Unusual styling along with multiple initial production problems resulted in one of the classic industry disasters for this supposedly state-of-the-art car in the late 1950s.

The 1958 Pacer model of the disastrous Ford Edsel range. Photo: Wikimedia, CC BY-SA

A lot is riding on the Cybertruck. It will be increasingly difficult to achieve powerful growth on the back of the Model 3/Ys and Model S/Xs. Tesla has talked about introducing an entry-level EV at circa $22,745, but has not always delivered on past promises.

If this hasn’t appeared by 2025, Tesla will have an aging product line and a need to inject more excitement into the brand. It will be protecting its market share against a host of new rivals and resurgent legacy brands. Without a big Cybertruck success, the company will find it ever harder to straddle the volume-premium divide.

Peter Wells is Professor of Business and Sustainability, Cardiff University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Xi’s big push to reverse China’s massive capital flight

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Xi Jinping’s first public visit to Shanghai in three years signals a new effort to boost China’s private sector. Yet even more important, Xi’s team in Beijing chose this week’s occasion to unveil a series of reforms that are a bigger deal than might meet the eye.

The stocks of Shanghai-centered tech companies like Semiconductor Manufacturing International Corp, Hua Hong Semiconductor Ltd. and Will Semiconductor Co. rallied on the news Monday.

The visit, coupled with new policies to level playing fields and increase private companies’ access to capital, is seen by some as Xi following through on vows made in California earlier this month to make life easier for China’s beleaguered entrepreneurs.

To date, Xi’s attempts to restore investor confidence amid struggles to move past Covid-19 fallout have fallen short. More than US$1 trillion of foreign capital fled mainland share markets since Xi clamped down on Big Tech in late 2020. More recent fears about deflation haven’t helped.

In recent weeks, Xi restarted China’s stimulus machine amid calls for greater government action amid a property crisis and stalling economic recovery. In particular, the People’s Bank of China, China’s central bank, has channeled more liquidity to troubled property developers.

Analyst Zerlina Zeng at CreditSights speaks for many when she says “we expect China’s softening external stance and warming relationship with the US and other developed markets to set a more conducive geopolitical backdrop for China credit.”

But the reforms being outlined this week could be a game-changer. The PBOC and seven other government bodies have unveiled 25 steps to increase the role of the private sector.

They will apply to a broad range of private sector industries, including the ailing property market. Gavekal Research analyst Xiaoxi Zhang isn’t exaggerating when she warns that “debt strains from property developers and local government financing vehicles are spreading across China’s economy.”

There are concerns, too, that Beijing’s criminal probe into the wealth management unit of Zhongzhi Enterprise Group, one of China’s largest “shadow banks,” could soon spook Asian markets the same way China Evergrande Group’s default did in 2021.

The Zhongzhi Group shadow bank is on the verge of collapse. Image: Twitter

Broader initiatives include setting clear and transparent targets for widening access to financial services for private enterprises.

With an emphasis on regular performance assessments and financial support, the plan is to increase the proportion of loans to private enterprises while improving organizational structures to increase efficiency.

Areas of particular focus include: supporting technological innovation amongst small and medium-sized enterprises, entrepreneurs in the green and low-carbon space and innovators keen to disrupt China from the ground up.

This will include a greater tolerance for risk-taking and the non-performing loans that startups can rack up. Beijing seeks to recalibrate lending and borrowing practices to increase private sector development while limiting risks.

This also includes increased support for first-time loans and unsecured loans. Financial institutions will be encouraged to develop a wider range of credit-financing products suitable for private enterprises.

Most important of all, Xi’s reform team is eying a great leap forward for China’s corporate bond market. This has long been a stumbling block for smaller, less established corporate credits. In particular, China plans to expand the range of bond financing options — and the scale — to private enterprises.

Under a series of “innovation bills” under the National Association of Financial Market Institutional Investors and China Securities Regulatory Commission, new structures will be welcomed for stock-bond hybrid products, green bonds, carbon neutrality bonds, transition bonds, infrastructure bonds and other financing tools.

Support programs will seek to incentivize private enterprises to issue asset-backed securities to restructure and revitalize existing assets. Registration mechanisms will be streamlined.

And Beijing will prod state-owned entities like China Bond Insurance Co and China Securities Finance Corporation, and even non-government institutions, to adhere to global standards and raise their credit market games.

That means building world-class systems for credit guarantees, credit risk mitigation tools, credit analysis and ratings and expanding China’s universe of bond financing support tools for private enterprises.

At long last, the Communist Party finally seems serious about facilitating increased bond investment in private enterprises. In years past, Beijing worried about a “crowding out” effect if private issuers lured capital from the national and local governments.

China’s bond markets haven’t kept pace with the economy’s needs. Image: Twitter

Now, Beijing will encourage banks, insurance companies, pension funds, public funds, and other institutional investors to allocate capital to private enterprises. Regulators will be charged with internationalizing trading mechanisms, market pricing, compliance and disclosure procedures.

Xi’s team also is stepping up efforts to develop a high-yield bond market. Few steps might be more impactful for private sector development – especially tech-oriented SMEs – than creating a dedicated high-yield debt platform empowered by world-class trading systems. It would supersize capital-raising options and pull in new generations of overseas investors.

In June, local media reported that the PBOC and CSRC sought advice from market participants on setting up a high-yield marketplace. As of then, only four high-yield debt issues with coupons exceeding 8% had priced in 2023.

Authorities sought input from fixed-income players, investment bankers, legal experts, rating companies and accountants. This would channel greater financing to tech enterprises, startups and riskier borrowers.

The key, though, is implementation. The disconnect between Xi’s rhetoric since 2012 and execution helps explain why investors tend to be skeptical of China’s past efforts to reboot the reform process.

“Time will tell whether President Xi’s words will first stem the current large foreign direct investment outflows and eventually lead to a resumption of the net FDI inflows that China has enjoyed for more than four decades,” says Nicholas Lardy, senior researcher at the Peterson Institute for International Economics. “A safe assumption is that it will take more than words to accomplish this objective.”

It helps that the news dropped days after Xi’s government drafted a list of property developers eligible for large-scale support, including the troubled Country Garden Holdings. The property crisis remains a major turnoff for overseas investors.

New data, Lardy notes, “imply that foreign firms operating in China are not only declining to reinvest their earnings but – for the first time ever – they are large net sellers of their existing investments to Chinese companies and repatriating the funds.”

The outflows in question exceeded $100 billion in the first three quarters of 2023 and, as Lardy predicts, “are likely to grow further based on trends to date.”

Among the factors Lardy cites as repelling overseas investors and chieftains: tense Sino-US tensions; recent news of Beijing cracking down on foreign consultancy and due-diligence firms vital to evaluating investments; Beijing’s increasingly stringent regulatory environment; new national security laws; and restrictions on cross-border data flows.

Michael Hart, president of the American Chamber of Commerce in China, notes that “foreign business executives here are eager to continue in China. But boards back in the US are wary.”

Hence the importance of Xi and Li ensuring that these new private enterprise policies are implemented in credible and transparent ways. The good news is that Li, party secretary for Shanghai City from 2017 to 2022, has close ties with, and deep understanding of, China’s tech sector.

Li Qiang understands the tech sector. Image: Screengrab / NDTV

Veteran banker Zhu Hexin seems a solid choice as new party chief of the State Administration of Foreign Exchange (SAFE). He will assume management of China’s foreign exchange stockpile from PBOC Governor Pan Gongsheng. Zhu also was appointed as a member of the central bank’s party committee.

Prior to SAFE, Zhu helmed state-run financial conglomerate CITIC Group, meaning he comes to the job with deep market knowledge and industry contacts. Also, Vice Premier He Lifeng has been tapped to oversee economic and financial policy and trade talks with the US and Europe as head of the Central Financial Commission.

It now falls to Li, Zhu and He to ensure that President Xi’s recent pledges to top Western chieftains in San Francisco don’t fall by the wayside.

CEOs on hand to hear Xi speak included Apple’s Tim Cook, Bridgewater Associates’ Ray Dalio, Citadel Securities’ Peng Zhao, ExxonMobil’s Darren Woods, JPMorgan Chase’s Jamie Dimon, Microsoft’s Satya Nadella, Pfizer CEO Albert Bourla and Tesla’s Elon Musk.

There, Xi claimed that “China doesn’t seek spheres of influence, and will not fight a cold war or a hot war with anyone.” Xi also seemed to preview the next phase of reform, stating that “we should remain committed to open regionalism, and steadfastly advance the building of a free trade area of the Asia-Pacific. We should make our economies more interconnected and build an open Asia-Pacific economy featuring win-win cooperation.”

Xi added that “we should promote transitions to digital, smart and green development. We should boost innovation and market application of scientific and technological advances and push forward the full integration of digital and physical economies. We should jointly improve global governance of science and technology, and build an open, fair, just and non-discriminatory environment for the development of science and technology.”

Earlier this month, Xi presided over a private sector symposium in Beijing to highlight its central role in a more innovative and productive Chinese future. There, Xi stressed that private enterprises contribute more than 60% of gross domestic product, 50% of tax revenue, 80% of urban employment, 90% of new jobs and 70% of tech innovation.

“Over the past 40 years, the private sector of the economy has become an indispensable force behind China’s development,” Xi acknowledged.

Yet private enterprise has had a rough few years, from Covid-19 to Xi’s tech crackdown. A major concern now is that China falls into a Japan-like lost decade, so-called “Japanification.”

Economist Takatoshi Ito, a former Japanese deputy vice minister of finance, notes that the Chinese property sector’s “travails echo Japan’s experience” with bad loans and deflation.

But, Ito adds, “perhaps the greatest threat to China’s economic growth and development is Xi himself. Xi has spent the last few years tightening government control over all aspects of life in the country, including the economy. The regulatory crackdown on large tech companies like Alibaba, which began in late 2020, is a case in point.”

Alibaba took the brunt of Xi’s tech clampdown. Image: Agencies

Though regulators “have since backed off somewhat, and China’s government is actively supporting high-tech industries like electric vehicles, Xi’s obsession with control continues to pose a serious threat to China’s prospects. Not only does it hamper innovation by domestic firms; it also discourages foreign investment.”

The good news is that the private sector reforms detailed in recent days suggest Xi is serious about bold economic disruption and recalibrating growth engines away from state-owned enterprises and public investment toward private sector innovation.

As long as implementation is swift and credible, 2024 could be a markedly better year for China than many investors now pulling their investments from Asia’s largest economy expect.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

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Analysis: Visa-free travel with China welcomed in Malaysia but hurdles remain for tourism sector

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SINGAPORE: Even as Malaysia anticipates an influx of Chinese travellers following the implementation of a visa-free programme between both sides, it must make efforts to maintain the expected momentum of inbound tourists, an analyst told CNA. 

Among the initiatives Malaysia could explore are to implement hassle-free immigration lanes to ensure the ease of travel, as well as conduct studies to understand Chinese tourist purchases and behaviour. 

Malaysian Prime Minister Anwar Ibrahim announced on Sunday (Nov 26) that visitors from China – as well as India – would be granted visa-free travel for visits of up to 30 days. This will take effect from Dec 1. 

“Next year, Malaysia will be celebrating 50 years of diplomatic ties with China,” Mr Anwar was quoted by local media as saying during the Parti Keadilan Rakyat (PKR) annual congress over the weekend.

Dr Puvaneswaran Kunasekaran, a senior lecturer at Universiti Putra Malaysia’s faculty of human ecology, told CNA that the occasion is “a big advantage for Malaysia to (carry out a) massive promotion” to attract tourists from China. 

China is one of the biggest markets for Malaysia’s tourism businesses, he said. He warned, however, that other dominant players in the region could pose a threat to Malaysia’s goal of drawing in Chinese tourists. 

Malaysia’s neighbouring country of Thailand, for example, has waived visas for Chinese nationals from Sep 25 until February next year, to middling results. 

Meanwhile, a similar visa-free policy was also announced by China for Malaysia and five other European countries – namely France, Germany, Italy, the Netherlands and Spain – that will begin on Dec 1. The visa-free entry into China for these countries is valid for visits of up to 15 days and is part of a one-year trial. 

Malaysian tourists whom CNA spoke to said that the removed hurdle of a visa application has piqued their interest to travel to China, although they said that the inability to access everyday apps like Google may pose an issue to their travels.

MAINTAIN MOMENTUM OF CHINESE TOURISTS, URGE ANALYST 

The move by Malaysia to grant 30 days of visa-free entry will increase the number of Chinese visitors, said Dr Puvaneswaran, who urged local tour and travel authorities to maintain the expected momentum of Chinese tourists. 

“This move is actually a ‘promotion trailer’ to introduce a bigger ‘Visit Malaysia Year 2026’ to the Chinese market,” he told CNA, adding that the influx of Chinese tourists has the potential to reach its peak in 2026. 

“Visit Malaysia Year” is a campaign held by the Malaysian government every several years to promote the country as a tourist destination. The most recent in this series was Visit Malaysia Year 2020, themed “Visit Truly Asia Malaysia”. 

Dr Puvaneswaran noted that Chinese tourists make up the biggest market for Malaysian tourism businesses, apart from travellers from Singapore and Indonesia in the Association of Southeast Asian Nations (ASEAN). 

Commenting on the travel pattern of Chinese visitors, Dr Puvaneswaran said that many tourists from China also visit neighbouring countries like Singapore, Thailand and Indonesia. 

“Thus, their travel to Malaysia is not always a lengthy stay,” he told CNA. 

To address this, he stressed that Malaysia should diversify its tourism products in order to set it apart from its competitors, especially Thailand. 

“There are many cultural and community-based tourism products which are unpolished diamonds in Malaysia. These could be properly established for the Chinese market,” he said. 

Beyond that, a mega Chinese New Year Festival next year in Malaysia – marking the 50th anniversary of diplomatic ties between the two countries – could be organised, suggested Dr Puvaneswaran. 

He added that to increase tourism numbers, both the Chinese and Malaysian governments could implement hassle-free immigration lanes, as well as an app to track tourist data in order to further understand their purchases and behaviour. 

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