SINGAPORE: Singapore downgraded its 2023 trade forecasts on Thursday (May 25) due to “worse-than-expected” performance in the first quarter of the year. Besides the first quarter showing, the forecast was also weighed down by the manufacturing downcycle and lower expected oil prices, said Enterprise Singapore (ESG) in its review. Non-oilContinue Reading
Mystified staff members of Zeku – a fabless chip firm started in 2019 by OPPO, China’s third largest smartphone company – were told on the evening of May 11 that they should work from home the following day.
The next morning, with staff dutifully absent from the premises, the mystery was dispelled when OPPO chief executive Liu Jun announced the closure of Zeku. Even most director-level employees had not been given advance warning.
“The global economy and the mobile phone industry are currently in an extremely pessimistic situation, and the company’s overall revenue is far below expectations,” Liu told Zeku’s staff. “Under such circumstances, a huge investment in chip-making is beyond our affordability.” He stressed that the decision to shut down Zeku was made after a careful discussion. He also said it was not caused by any issues related to the performance of Zeku’s staff.
Citing Qing Dynasty novelist Wei Zi’an’s poem “Traces of Flowers and the Moon,” Liu said that “a romantic person is always left with regret, and it’s easy to wake up from sweet dreams.” He meant that OPPO should wake up from its chip-making dream in time to avoid any big cause for regret.
In August 2019, OPPO founded Zeku and vowed to invest up to 50 billion yuan ($7.1 billion) within three years to make its own semiconductors. But on May 12 this year, OPPO shut down Zeku and dismissed its 3,000 employees. It was a sudden move, as shown by the fact Zeku was still recruiting engineers in late April.
There’s considerable debate about what caused Zeku’s failure, with many commentators blaming US sanctions, but one dominant theme that has emerged in the aftermath is that Chinese smartphone makers should jointly develop their chips, instead of working – and in some cases failing – individually.
Some Chinese commentators said the failure of Zeku was caused not by US sanctions but by slowing demand in the smartphone markets. However, some analysts said it’s strange that Zeku was closed ahead of a chip debut that had been scheduled for next month; they insist that OPPO does not lack the cash to run the unit.
Jiang Han disagrees with that analysis. “It costs a huge amount of resources to make chips but the success rate is low,” Jiang, a senior analyst at Pangoal Institution, a public policy think tank, says in an article. “And the current smartphone market cannot support such an operation.”
He adds: “Even if OPPO has already achieved some technological breakthroughs, it remains far from having an advantage in the industry. In this situation, cutting losses now is a good option.”
The OPPO case shows “that it is very difficult for Chinese smartphone makers to develop their own chips individually; even the chip-making equipment giant ASML could only be built after key chip makers worked together,” Jiang says. “In the past, China Mobile, China Unicom and China Telecom jointly set up China Tower Corp to boost efficiency and lower the costs of infrastructure facilities. Why can’t Chinese chip-design firms collaborate with one another?”
Another view emphasizes bad luck. Zeku was founded at the wrong time, Shen Meng, chief consultant at Guangke Management Consulting, a unit of the Guangdong Polytechnic of Science and Technology, told Beijing Business Today.
“When OPPO decided to invest in chip-designing in 2019, the pandemic had not yet broken out,” Shen said. “The Covid-19 epidemic did not only hurt the global demand for smartphones but also created a lot more challenges to the chip-making sector.”
Last year, China’s smartphone shipments fell 13.2% to 286 million units from 2021, according to IDC, a market data provider. It is the first time that the figure dropped below the 300 million mark in ten years.
Oppo’s shipment fell 28.2% for the period while its market share in China dropped from 20.4% to 16.8%. Honor replaced OPPO to be the second largest smartphone maker in China, following the number one player, Vivo.
In the first quarter of this year, global smartphone shipments decreased 13% year on year to 269.8 million units, according to Canalys, a Singapore-based market analyst firm. Samsung’s shipments declined by 18% but Apple’s grew 3%. Xiaomi and OPPO saw their shipments down by 22% and 8%, respectively.
Shen Yiren, a former vice president of OPPO, wrote in a post that “A problem that can be solved by money is no big deal. One that cannot be solved by money is the real problem.” He then removed the post, which caused a lot of speculation.
Some netizens speculated that OPPO had been pressured by its US supplier Qualcomm or Taiwanese partners TSMC or MediaTek. Some said the time when OPPO finally realized that it is not economically up to making its chips came after its 4-nanometer application processor (AP) chip failed in the “tape out” process, which makes a prototype before mass production.
In February, media reports said Zeku’s AP chip would enter the “tape out” phase in the second quarter and mass production in the third quarter.
In a smartphone, there are two kinds of high-end processors, namely the AP and the baseband processor (BP). AP refers to the central processing unit (CPU) and graph processing unit (GPU). BP is like a modem that receives wireless signals and transforms them into digital data.
According to Statista, Qualcomm had a 55.7% share in the BP chip market, followed by MediaTek (27.6%), Samsung (7.4%) and others (9.3%) in 2021. Huawei’s HiSilicon Technologies had for a time achieved a 16-18% share with its 5G BP chips but it started fading out from the market once TSMC was ordered by Washington to stop producing chips for Huawei in September 2020.
Chinese IT experts have recently discussed whether the US sanctions played any role in the shutdown of Zeku.
An IT columnist says in an article published by China’s NetEase.com that OPPO is not lacking money judging by the fact that it compensated Zeku’s staff generously, spending about 500 million yuan on severance packages. He says, Zeku may have burned only 10 billion to 13.5 billion yuan over the past three years, far below its planned budget of 50 billion yuan.
He says Zeku’s AP chip has not failed in the “tape out” process as the result will only be released in mid-June. Besides, he says, MediaTek also felt surprised as it had to stop a BP chip project related to Zeku’s AP chip.
While “the sudden dismissal of Zeku staff remains a mystery, it is normal that some netizens think OPPO is deeply scared of the curbs imposed on the Chinese chip sector in recent years,” he says.
In a report published by the Powerhouse, a media unit of Jiemian.com, an unnamed analyst says that it is a conspiracy theory that Zeku was shut down because of the US curbs.
“If there is any potential risk against Zeku, TSMC would be the first one to notice it,” the analyst says. “But over the past month, there had not been any such signal. TSMC was only told after Zeku was dissolved.”
A Zeku employee says OPPO can only blame itself as its previously-launched MariSilicon X and Y chipsets have failed to receive positive responses from the markets. He says Chinese consumers only care about the user experience, not about whether the chips are designed in China. He points out that OPPO did not promote its own chips in its own marketing campaigns.
The Powerhouse report says the fall of Zeku has raised an alarm among other Chinese mobile phone makers, such as Xiaomi, which invested heavily in chip design.
OPPO launched its first chipset, called MariSilicon X, a 6nm imaging neural processing unit (NPU), in December 2021. The company then unveiled MariSilicon Y, a 4nm bluetooth audio system-on-a-chip (SoC), last December.
While it remains unclear what was the straw that broke the camel’s back, some observers said Xiaomi Corp, a Beijing-based smartphone maker, could be the next to close its chip design division as its sales dropped 22% year on year in the first quarter of this year. But Xiaomi said on May 18 that it will continue to make its own chips.
Read: US sanctions bite as Huawei runs out of phone chipsets
Read: Sanctions starting to bite Huawei 4G chips sourcing
Follow Jeff Pao on Twitter at @jeffpao3
The Covid-19 pandemic posed a tremendous economic challenge, especially for emerging economies such as Indonesia. But it also marked a watershed moment for the country’s economic reform efforts. The crisis enabled Indonesia to reduce its reliance on volatile foreign capital inflows and rethink its growth pathway.
During the pandemic, Indonesia was temporarily set free from its reliance on foreign capital as global investors fled emerging markets bonds and equity. At the same time, slumping domestic demand, which suppressed imports, and relatively large national savings ameliorated Indonesia’s current account deficit problem.
Russia’s war in Ukraine led to a commodity price boom that further boosted the domestic economy while it was still recovering from the pandemic.
Indonesia’s current account deficit problem stems from insufficient foreign direct investment (FDI). In 2021, Indonesia’s FDI inflow was only 1.8% of GDP, compared to Vietnam’s 4.3% and Malaysia’s 5%.
Instead, the economy has depended on volatile commodity-related exports and volatile foreign inflows in bonds and equity markets. The shallow and inadequate domestic financial market has not been able to sufficiently mobilize savings to finance the country’s investment needs.
In previous cycles of global volatility, subsequent outflows of foreign capital have significantly depreciated the Indonesian rupiah and caused liquidity crunches in the financial system.
This negatively impacted the domestic economy by increasing the government and corporate sector’s debt burden, creating inflationary pressure and raising funding costs and non-performing loans in the banking system.
Reform efforts to handle the problem by shrinking the account deficit have faced challenges. In previous years, reducing the current account deficit usually meant slowing down domestic consumption and imports, which inhibits economic growth. Efforts to boost manufacturing exports also have hit a brick wall.
As Indonesian wages are relatively higher, other Asian exporters — notably Vietnam and Bangladesh — have become more competitive.
Numerous financial scandals have undermined efforts to effectively mobilize savings and deepen financial markets. Despite these setbacks, institutional reforms are making some headway. The Ministry of Finance and Bank Indonesia are increasingly seen as credible institutions that adopt evidence-based policies, defend Western-style central bank independence and are led by respected figures.
Implementing measures to prevent excessive capital flows has proved complicated. Even a hint of capital controls or other regulations that would restrain the country’s relatively free and open capital markets have been met with resistance due to the experience of the Asian financial crisis. Relatively loose global monetary policy and prudent fiscal policies have also led to Indonesia’s rising popularity for foreign portfolio investment.
The government was quick to implement policy reforms that have partly borne fruit. The first of them is reform in the real economy. The government pushed through the Omnibus law in November 2020, which aims to improve Indonesia’s competitiveness and encourage labor-intensive industries’ growth. But its implementation is yet to be seen due to pushback by special interest groups.
The global energy crisis also inspired the government to enact a series of controversial policies, including “downstreaming” and the prohibition of raw material exports. These policies have partly contributed to increasing exports of nickel derivatives between 2011–2022 and stimulated economic growth in regional provinces.
The second policy group included financial sector reforms. The government passed a new financial omnibus bill to improve the credibility of the financial system, widen and deepen the domestic financial market, support new technologies growth and clarify crisis responses. Plans were also put in place to restructure the entire non-bank financial system after the collapse of a major state-owned insurance company in 2020.
The local bond market has grown substantially since the pandemic. Local banks are inclined to hold a large number of government bonds due to slumping credit demand, significantly boosting local ownership. The Ministry of Finance’s successful campaign to push savvy domestic investors to buy retail government bonds further mobilizes consumer savings and improves market discovery.
Indonesia’s central bank — Bank Indonesia — has also pulled its act in the domestic foreign exchange market. New derivative instruments have succeeded in driving market expectations of local currency movements and relieving pressure on the current exchange rate. The launch of a new time deposit facility for exporters also boosted foreign exchange supply.
In anticipating the sudden global dollar liquidity crunch, the central bank has intensified efforts to proliferate local currency settlements (LCS) — a program that encourages using local currencies to settle bilateral transactions — with Indonesia’s main trade partners.
Its efforts have significantly increased its monthly LCS usage. The central bank has also sought to reduce Indonesia’s reliance on foreign service providers by launching a new national credit card gateway.
Bank Indonesia has also embraced digitalization. The Indonesian QR standard has become widely available, logging over 24 million merchants and daily transactions of more than US$800 million.
It has enabled millions of informal sector vendors to interact with the mainstream financial system via Indonesia’s growing digital banking industry. This could be a potential goldmine for the government to increase fiscal policy effectiveness.
Indonesia has taken advantage of the Covid-19 pandemic and undergone fundamental reforms to address its previous flaws. Its job now is to finish implementing those “structural reforms” by enhancing the ease of doing business, reducing investment barriers and improving labor productivity and financial inclusion.
Suryaputra Wijaksana is an economist at Bank Rakyat Indonesia. The views expressed in this article are the author’s own.
This article was originally published by East Asia Forum and is republished under a Creative Commons license.
JAKARTA – After being the focus of dire American travel warnings during more than 15 years of terrorist attacks, Indonesians may be excused for cracking a wry smile now that six countries are doing the same for the United States, the mass shooting capital of the world.
New Zealand, which along with Iceland shares the top two slots in the 2022 Global Peace Index, Australia, Canada, Britain, France, Venezuela and Uruguay have all issued advisories warning their citizens about gun violence when traveling to the US.
They all allude to the prevalence of gun ownership – and the absence of controls – blamed for the 200-plus mass shootings so far this year in which four or more victims have been killed or wounded, excluding the shooter.
Australia tells its nationals that gun crime is possible anywhere in the US and advises those living there to learn active shooter drills. “There is always a risk of being in the wrong place at the wrong time,” the advisory says.
That’s Canada’s line too, reminding citizens that “frequent mass shootings occur, resulting most often in casualties.” Britain says “violent crime, including gun crime, rarely involves tourists, but you should take care walking in unfamiliar areas.”
Venezuela is an anomaly, its travel warning apparently a reaction to the US placing it on its “no go” list – one reason perhaps being it has one of the world’s highest homicide rates.
While mass shootings may have fallen slightly in the US last year, the Kentucky-based non-profit group Gun Violence Archive has recorded 600 cases in each of the last three years in the only country where the number of weapons outnumbers the population.
So far, few tourists have been affected, but as with the immediate impact on tourism from past terror bombings in Indonesia and violent military coups and other actions in Thailand and the Philippines, perception is everything when it comes to personal safety.
Take Bali, ghost-like after the October 2002 bombings, but still managing to stay afloat commercially during the two-year Covid-19 pandemic when 109,000 foreigners elected to stay on and sit it out.
US citizens are probably safer from random violence in Indonesia and Thailand – and even in the trigger-happy Philippines, a former colony with a penchant for copying America’s bad habits – than at home unless stupidity becomes a factor.
The Global Peace Index ranks Indonesia in 47th place, far ahead of the US, which lies in 129th position behind Zimbabwe and Azerbaijan and ahead of Brazil among 163 countries.
Singapore is best among the Southeast Asian nations at ninth, trailed by Malaysia (18), Vietnam (44), Laos (51), Timor Leste (54), Cambodia (63), Thailand (103), the Philippines (125) and Myanmar, unsurprisingly, at 139.
American commentators like to think their country is as safe as anywhere, and probably is. But rates of lethal violence – and a willingness to shoot first and ask questions later – are far higher than in other developed nations thanks to its 2nd Amendment, which protects the right to bear arms.
According to Wisevoter, the gun death rate in the US in 2022 was 4.1 per 100,000 people, leaving it in 32nd place behind El Salvador (35.5), Venezuela (32.7), Guatemala (28.2), Colombia (24.8) and Honduras (20.2) – all known for their drug trafficking and violent crime.
The Philippines leads the way in Asia in 21st place with 8.28 per 1,000. The 9,028 deaths make it sixth in the world, but still far behind Brazil (47,510), Mexico (20,509) and the United States, where two-thirds of the 13,001 deaths were by suicide.
Thailand, home of the Petchburi hired gunmen made notorious internationally by the film “Bangkok Dangerous”, is in 47th place with 3.1 per 1,000, though its 2,351 gun deaths put it 12th in the world.
Indonesia, which doesn’t have a gun culture, places 187th globally. It had a firearm death rate in 2022 of only 0.06 per 1,000, a breakdown indicating that most of the 153 fatalities were caused by either accidents or suicides.
But Islamic extremist groups are still active, both from inside and outside Indonesia.
Early last month, three Uzbeks linked to the al-Qaeda-affiliated Katiba al Tawhid wal Jihad escaped from a North Jakarta detention center after stabbing to death two immigration officers. A fourth Uzbek died from a head injury in the escape attempt.
The three escapees were recaptured, and investigations are now focused on whether they entered Indonesia intending to attack the Israeli football team, which was due to take part in the now-canceled FIFA Under-20 tournament.
Indonesian authorities were alerted to their presence by US intelligence, which tracked them from the Afghanistan capital of Kabul via Dubai in the United Arab Emirates.
Later in mid-April, two terrorists were killed and four arrested in a rare shootout with Detachment 88 counter-terrorism officers in the southern Sumatran province of Lampung.
In December 2022, in another sign that terrorist cells remain a security threat, a suicide bomber attacked a suburban police station in Bandung, killing one policeman and wounding 11 others.
Although deradicalization efforts have been notably ineffective, terrorism expert Sydney Jones says the global decline of the Islamic State (ISIS) and effective police work have been the major factors for the current lull.
In fact, ithas now been more than five years since the last major incident, in the East Java port city of Surabaya in 2018 where the simultaneous bombing of three churches left 28 people dread, including 15 victims and 13 attackers.
Even after the first string of bombings by the newly-emerged Jemaah Islamiyah terror network in 2000, which claimed 35 innocent victims, it took the Megawati Sukarnoputri government two years to acknowledge it had a home-grown extremist threat on its hands.
In August 2001, US ambassador Robert Gelbard directed the evacuation of all dependents and non-essential staff in response to intelligence reports of a planned Yemeni double truck bomb attack on the embassy.
When an equally complacent City Hall refused his request to build a bomb-proof wall along the mission’s street frontage, he had to settle for giant reinforcedflowerpots instead. The alert level remained high as a result, exacerbated by the 9/11 attacks that year.
Gelbard’s successor, Ralph Boyce, recalls a group of Bali hoteliers coming to see him in late 2001 asking the embassy to exclude Bali from its travel advisory because as a Hindu enclave nothing would ever happen there.
Exactly a year later, the twin bombings of two packed nightclubs on Bali’s tourist strip killed 202 people, including 164 foreigners, in the worst terrorist outrage since the 2001 attacks in New York and Washington.
Seven further attacks followed in Bali, Jakarta and Central Sulawesi between 2003 and 2009, claiming another 82 lives and leaving scores wounded, mostly in hotels and markets.
The US currently lists Indonesia at Alert Level 2 (exercise increased caution due to terrorism and earthquakes) on a color-coded scale where four is the highest.
But it does advise against any travel to Central Papua and Highland Papua where security forces have been trying to secure the release of a New Zealand pilot kidnapped by Papuan rebels last February.
This lopsided coverage profile has led to criticism that the EPF has morphed into an investment and savings vehicle for the rich. Senior pension fund executives told CNA that this impression is tough to refute. The prime minister has also asked EPF to invest more domestically to aid the economy.Continue Reading
Republicans and Democrats are again playing a game of chicken over the US debt ceiling – with the nation’s financial stability at stake.
Treasury Secretary Janet Yellen recently said that June 1, 2023, is a “hard deadline” for raising the debt limit, currently set at US$31.38 trillion, to avoid an unprecedented default. The government hit the ceiling back in January and has been using “extraordinary measures” since then to keep paying its bills.
Last-minute negotiations between the White House and Republicans have been mostly fruitless as conservatives in the House push for big spending cuts and policy changes, while President Joe Biden has insisted on lifting the ceiling with no strings attached. They are expected to continue to meet in the coming days.
Economist Steven Pressman explains what the debt ceiling is and why we have it – and why it may be time to abolish it.
Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. Government debt is the total sum of all this borrowed money.
The debt ceiling, which Congress established a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt.
The US government debt of $31.38 trillion is about 22% more than the value of all goods and services that will be produced in the US economy this year.
Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, currently $2.8 trillion, in government bonds. And the Federal Reserve holds $5.5 trillion in US Treasurys.
The rest is public debt. As of October 2022, foreign countries, companies and individuals owned $7.2 trillion of US government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to US citizens and businesses, as well as state and local governments.
Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.
The Second Liberty Bond Act of 1917, which created the debt ceiling, changed this. It allowed a continual rollover of debt without congressional approval.
Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase.
The debt ceiling has been increased dozens of times since then and suspended on several occasions. The last change occurred in December 2021, when it was raised to $31.38 trillion.
Whenever the US nears its debt limit, the Treasury secretary can use “extraordinary measures” to conserve cash, which she indicated began on January 19. One such measure is temporarily not funding retirement programs for government employees. The expectation will be that once the ceiling is raised, the government would make up the difference. But this will buy only a small amount of time.
If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.
When the government can’t pay all its bills, it is technically in default. Policymakers, economists and Wall Street are concerned about a calamitous financial and economic crisis. Many fear that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.
Under normal circumstances, once markets start panicking, Congress and the president usually act. This is what happened in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act.
But we no longer live in normal political times. The major political parties are more polarized than ever, and the concessions McCarthy gave right-wing Republicans may make it impossible to get a deal on the debt ceiling.
One possible solution is a legal loophole allowing the US Treasury to mint platinum coins of any denomination. If the US Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders.
This could even be justified by appealing to Section 4 of the 14th Amendment to the US Constitution: “The validity of the public debt of the United States … shall not be questioned.”
Few countries even have a debt ceiling. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the US economy in jeopardy because of political grandstanding.
The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing?
It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.
Steven Pressman is Part-Time Professor of Economics, The New School
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Europe is starting to reverse the decline of its once-strong semiconductor industry, a potentially important turn in the escalating tech war pitting the US and its allies against China.
Despite having some of the world’s best technology – and despite the large size of the European economy – Europe’s chip industry has dwindled to just a third of the silicon wafer processing capacity of Japan and less than half of the US.
Both the private sector and EU bureaucracy are now working to reverse the decline, though the hyperbole of some politicians is obscuring the situation. For example, on May 16, EU Commissioner for Internal Market Thierry Breton delivered the keynote address at the IMEC Technology Forum in Antwerp. Among other things, he said:
“We are refusing any attempt of geographical segmentation where Europe would produce mature nodes, while Asia and US would produce advanced nodes.”
“Europe cannot and will not be considered as a mere observer in any ‘underground technological battle’ between blocks.”
“Europe will not be subject to the choices of others. This is why I want a Europe that knows how to lead on semiconductors.”
Apart from rallying the corporate troops, Breton’s remarks are puzzling. For one, no one is conspiring to keep the European semiconductor industry down. On the contrary, Europe is cooperating with US sanctions to confine China to mature chip technology.
Nor is there any known “underground technological battle” between “blocks.” There is a well-publicized and highly-politicized conflict between the US and its allies on the one side and China on the other – a Western bloc and an Eastern bloc in a new semiconductor cold war.
Furthermore, all nations’ semiconductor industries are and will remain subject to the choices of others. And Europe, as home to ASML, Infineon, ST Micro and other first-rate semiconductor device and equipment makers, already knows what it takes to lead the industry.
Practically speaking, the problem in Europe is the same as the problem in the US, only arguably worse: limited production capacity and high dependence on Taiwan, specifically TSMC.
This situation is the result of investment decisions made over the past two decades, not a secret conspiracy. Breton is, of course, aware of this, having been a prominent business executive and French minister of economy, finance and industry.
In 2022, European spending on semiconductor production equipment nearly doubled, but still accounted for only 5.8% of the global total, according to industry association SEMI.
The figure for the US was 9.7%, after an increase of almost 40%. The figures for China, Taiwan and South Korea were 26.3%, 24.9% and 20.0%.
At the end of 2021, Europe’s share of worldwide integrated circuit wafer capacity was only 5%, according to Knometa Research. That was dwarfed by the Americas (11%), Japan (15%), China (16%), Taiwan (21%) and South Korea (23%).
The European Chips Act was enacted to upend that trend. Officially proposed in February 2022, it was approved by the European Parliament in April 2023.
With a 43 billion euro ($46.4 billion) package of public and private investments, it aims to raise Europe’s share of the global semiconductor market to 20% by 2030, bringing the industry back to its 2000 position. Estimates vary but it is now at no greater than 10% of the world market.
The Act also aims to diversify the European semiconductor industry away from its concentration in automotive and industrial-use ICs by developing expertise in chips used in artificial intelligence, 6G mobile telecom, the Internet of Things, quantum computing and other emerging areas, with investments in everything from “innovation” and design to fabrication and packaging.
To ramp up mass production and introduce advanced process technology, the EU is relying on new investments by Infineon and other European companies, joint ventures with foreign companies such as the one announced by STMicroelectronics and GlobalFoundries last year, and direct investment in production facilities by Intel and TSMC.
According to commissioner Breton, “This will allow us to rebalance and secure our supply chains, reducing our collective dependence on Asia.”
That should be possible to a degree, but regaining 20% of the global semiconductor market is likely a stretch. The US CHIPS Act offers more money ($52.7 billion); TSMC, Samsung Electronics and Intel are investing heavily in their home markets; Japan is pursuing a strategy similar to Europe’s; and China appears to be spending an amount of money on chip development that Europe won’t or can’t match.
Last December, it was reported that China was planning to provide its semiconductor industry with more than $140 billion in corporate subsidies and tax credits. In January, however, it was reported that this approach had been abandoned.
The Chinese government and Chinese semiconductor companies are now said to be focused on mature process nodes rather than accelerated miniaturization in order to develop comprehensive expertise step-by-step.
Even so, China’s progress is still impressive. Guangdong province alone has some 40 semiconductor-related projects valued at more than $70 billion either underway or in the planning stage. Investments are also reportedly being ramped up in Shanghai, Suzhou, Beijing and elsewhere.
China’s problem is the opposite of Europe’s: its semiconductor production capacity is already quite substantial – more than 15% of the worldwide total, including foreign-owned facilities – but it must invest heavily to dodge and circumvent US sanctions, which are migrating from leading-edge to mature process nodes.
In particular, China must protect its auto industry from sanctions. Here, as is already the case with ASML and the ban on exporting EUV lithography tools to China, Europe could become an important factor.
Europe’s three top semiconductor makers – Infineon, STMicroelectronics and NXP – all have significant business interests in China. They are also the world’s top three makers of automotive ICs while China is both the world’s largest auto market and biggest producer of electric vehicles.
Breton said, “I am eager to work with the US, Canada, India, Japan, South Korea, Singapore, and, of course, Taiwan.”
That is, everywhere but China, which he refers to as a systemic rival. In Europe as in the US, the semiconductor industry tends to see China as a great market opportunity while politicians increasingly regard it as a strategic risk.
As long as politicians limit themselves to tough rhetoric rather than punitive action, European automotive IC makers should have a bright future doing business in China. But if they decide to impose sanctions on China’s auto industry, those same companies – and European automakers – will pay a high price.
Follow this writer on Twitter: @ScottFo83517667
“I think it’s still a region that not many people think of straight away. Many Singapore companies, naturally, will still think of countries in the nearby regions, and rightfully so because these are familiar regions and these are also growth regions, especially South Asia,” said Mr Clarence Hoe, executive director for Americas and Europe at EnterpriseSG.
“But this is where Enterprise Singapore comes in. We really look at finding the new areas which are growing, identify them and share them with our companies. And this helps to provide new markets, not just as a growth opportunity, but also as a market for diversification.”
Kazakhstan, one of the largest economies in Central Asia, is Singapore’s largest trading partner in the region, with more than 30 Singapore companies in the country. There are also over 20 firms operating in neighbouring Uzbekistan.
EnterpriseSG said it is organising seminars and trade missions for Singapore firms to connect and collaborate with partners in Central Asia, as part of efforts to help more local firms expand and enhance their supply chain resilience.
Some businesses that have expanded into Central Asia told CNA that their efforts are paying off.
Among them is Singapore-listed food manufacturing and distribution company Food Empire, which saw an opportunity nearly 30 years ago.
Today, the company’s coffee products can be found in stores and supermarkets across Kazakhstan.
“Our business has been growing year upon year,” said Mr Anil Bhuwania, business head of Central Asia at Food Empire.
“Over the last four years, in terms of volume, our market share has grown from 67 per cent to 73 per cent (for) coffee mixes.”
The company is now looking to add tea products into the mix, especially tea with milk.
However, logistics and transportation remain a challenge.
“We need to find alternative routes, either via China or sometimes via Georgia, and see how the goods can be transported into Kazakhstan because it’s a landlocked country,” said Mr Bhuwania.
US chip maker Micron Technology has become the first Western firm sanctioned by China after G7 countries vowed to de-risk from the world’s manufacturing hub.
China’s key national infrastructure operators are now forbidden to purchase products from Micron because the company poses network security risk, said the Cybersecurity Review Office, a unit of the Cyberspace Administration of China.
Mao Ning, a spokesperson of the Chinese Foreign Ministry, said Monday that the investigation of Micron’s products is necessary as it is aimed at preventing China’s telecom infrastructure from facing cybersecurity risks.
The US Commerce Department said China’s accusations against Micron have no basis in fact. It said it will engage directly with China to resolve restrictions on Micron chip deliveries.
“We also will engage with key allies and partners to ensure we are closely coordinated to address distortions of the memory chip market caused by China’s actions,” the department said. “This action, along with recent raids and targeting of other American firms, is inconsistent with the People’s Republic of China (PRC)’s assertions that it is opening its markets and is committed to a transparent regulatory framework.”
The US had asked South Korea to urge its chipmakers not to fill any market gap in China if Micron products were banned in the Chinese markets, according to a Financial Times report published April 24.
Jang Young-jin, South Korea’s vice minister of trade, said Monday that Samsung and SK Hynix will make a judgment on whether they should do as the US requested.
Micron said it is evaluating the conclusion made by the Cyberspace Administration and assessing its next steps.
An article titled “Micron has done all the bad things! Now it is finally sanctioned” was widely circulated on the Internet in China on Monday, explaining the logic behind Beijing’s curbs.
“In January 2022, when the US government pushed forward its plan to de-couple from China, Micron said it would stop cooperating with China, sack its staff and close its Shanghai-based DRAM design center,” the writer says. “It also provided skilled worker visas to more than 40 senior technicians and migrated its businesses from China to India and the US.”
The writer continues, “In the China-US chip war, Micron has always been actively playing the role of a vanguard of the US. The company makes money in the Chinese market while replying to the United States’ power to suppress Chinese chip firms. It has done all the bad things!”
He concludes, “What do we only sanction Micron but not Samsung and SK Hynix? They all make money in China but Micron does not increase its investment in the country while Samsung and SK Hynix keep re-investing.”
Media reports said last month that US President Joe Biden was set to sign an executive order that would restrict US companies and private equity and venture capital funds from investing in China’s microchips, artificial intelligence, quantum computing, biotechnology and clean energy projects and firms.
Biden had planned to announce these investment curbs before the G7 Summit, which was held in Hiroshima between last Friday and Sunday, but he has not unveiled them so far.
G7 leaders said in a joint statement on Saturday that they have a common interest in preventing a narrow set of technological advances from being used by some countries to enhance their military and intelligence capabilities to undermine international peace and security.
“A growing China that plays by international rules would be of global interest. We are not decoupling or turning inward,” they said. “At the same time, we recognize that economic resilience requires de-risking and diversifying.”
“We will continue to ensure that the clearly defined, narrow set of sensitive technologies that are crucial for national security or could threaten international peace and security are appropriately controlled, without unduly impacting broader trade in technology,” said G7 leaders. “We will enhance resilient supply chains through partnerships around the world, especially for critical goods such as critical minerals, semiconductors and batteries.”
This statement also set off the Chinese punditocracy. “G7 has become an important tool for the US to contain and suppress China,” a Hebei-based writer says in an article. Washington “is now promoting deglobalization by using subsidies and coercion to attract semiconductor firms to set up factories in the US.”
He adds, “Now the US gets what it wants as China is saying ‘no’ to US memory chip makers. Micron tried to expand in China and benefit from the US sanctions against Chinese chip firms. But it has shot itself in the foot.”
Last year, Micron’s revenue from China amounted to $3.3 billion, about 11% of the company’s total revenue. The figure more than tripled from $5.3 billion in 2016 to $17.4 billion in 2018 but it started to decline after Micron had legal disputes with Chinese firms.
As early as March 31, the Cyberspace Admnistration had said it was looking into Micron’s products sold in China but it was not until Sunday evening that it announced the Micron ban.
An unnamed analyst was quoted by the National Business Daily as having said on Monday that Chinese memory chip makers, including GigaDevice, Yangtze Memory Technologies Corp (YMTC), ChangXin Memory Technologies (CXMT), Dongxin Co. Ltd and Ingenue Semiconductor, will benefit as they can grab Micron’s market share in China.
He said that during the transition, China will not face a memory chip shortage as there is enough inventory in the markets.
YMTC, the main Chinese competitor to Micron, is developing its own supply chain by using Chinese-only equipment, the South China Morning Post reported on April 23. The company has placed orders with domestic tool suppliers, including Beijing-based Naura Technology, after receiving new funding from its state-backed investors.
However, Liu Pei-chen, a researcher at the Taiwan Institute of Economic Research, warned that China may face a memory chip shortage if suppliers in South Korea, Japan and Taiwan limit their exports to the country upon the US’s request.
Liu said China still relies heavily on the import of foreign memory chips as YMTC and CXMT have limited production capacities. She said the US may have a say in whether suppliers in South Korea, Japan and Taiwan should take up Micron’s market share in China.
Read: Micron probe by China seen as chip war retaliation
Follow Jeff Pao on Twitter at @jeffpao3
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