Elon Musk: Tesla may cut prices again in ‘turbulent times’

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Tesla chief executive Elon Musk gets in a Tesla car as he leaves a hotel in Beijing, China.Reuters
By Annabelle Liang
Business reporter

Tesla chief executive Elon Musk has signalled that the electric carmaker will continue to cut prices as the world economy is in “turbulent times”.

The multi-billionaire’s comments came after the company reported that its profit margins had been squeezed as it faced tough competition.

In recent months, Tesla has cut its prices several times in major markets, including the US and China.

The firm’s shares fell by more than 4% in after-hours trade in New York.

Tesla reported that its profit margin had fallen to the lowest level in four years.

The company said its gross profit margin fell to 18.2% for the three months to the end of June, down from 26.2% for the same period last year.

During a call with Wall Street analysts, Mr Musk signalled that he was open to cutting prices further if needed.

“One day it seems like the world economy is falling apart, next day it’s fine. I don’t know what the hell is going on,” he said.

“We’re in, I would call it, turbulent times,” Mr Musk added.

Investors are concerned about the possibility of more price cuts at Tesla, Arun Sundararajan, a Professor at the NYU Stern Business School, told the BBC.

“This feels like a price war with no long term strategy to raise margins if Tesla wins the war,” he added.

Earlier this year, Mr Musk said he believed pursuing higher sales, with lower profits, was the “right choice” for Tesla.

The firm has lowered prices in markets including the US, UK and China to compete with rival manufacturers.

Earlier this month, the company said it delivered a record number of vehicles in the three months to the end of June.

It comes as more carmakers have agreed to adopt Tesla’s electric vehicle (EV) charging technology.

On Wednesday, Japanese motor industry giant Nissan said its EVs in the US and Canada would be equipped with Tesla-developed charging ports from 2025.

Nissan Americas’ chairperson Jérémie Papin said the firm was committed “to making electric mobility even more accessible”.

The announcement follows similar moves by US car manufacturers Ford and General Motors.

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World hunger and the war in Ukraine

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On Monday, June 17, Dmitry Peskov, the spokesman for Russian President Vladimir Putin, announced, “The Black Sea agreements are no longer in effect.” This was a blunt statement to suspend the Black Sea grain initiative that emerged out of intense negotiations in the hours after Russian forces entered Ukraine in February 2022.

The initiative went into effect on July 22, 2022, after Russian and Ukrainian officials signed it in Istanbul in the presence of the United Nations Secretary General António Guterres and Turkish President Recep Tayyip Erdogan.

Guterres called the initiative a “beacon of hope,” for two reasons. First, it is remarkable to have an agreement of this kind between belligerents in an ongoing war. Second, Russia and Ukraine are major producers of wheat, barley, corn (maize), rapeseed and rapeseed oil, sunflower seeds and sunflower oil, as well as nitrogen, potassic, and phosphorus fertilizer, accounting for 12% of calories traded.

Disruption of supply from Russia and Ukraine, it was felt by a range of international organizations, would have a catastrophic impact on world food markets and on hunger. As Western – largely US, UK and European – sanctions increased against Russia, the feasibility of the deal began to diminish.

It was suspended several times during the past year. In March, Russian Foreign Ministry spokeswoman Maria Zakharova, responding to the sanctions against Russian agriculture, said the main parameters provided for in the grain deal “do not work.”

Financialization leads to hunger

US Secretary of State Antony Blinken said his country regrets Russia’s “continued weaponization of food,” since this “harms millions of vulnerable people around the world.” Indeed, the timing of the suspension could not be worse.

A United Nations report, “The State of Food Security and Nutrition in the World 2023” (July 12, 2023), shows that one in 10 people in the world struggles with hunger and that 3.1 billion people cannot afford a healthy diet.

But the report itself makes an interesting point: that the war in Ukraine has driven 23 million people into hunger, a number that pales in comparison to the other drivers of hunger – such as the impact of commercialized food markets and the Covid-19 pandemic.

A 2011 report from World Development Movement called “Broken Markets: How Financial Market Regulation Can Help Prevent Another Global Food Crisis” showed that “financial speculators now dominate the [food] market, holding over 60% of some markets, compared [with] 12% 15 years ago.”

The situation has since worsened. Dr Sophie van Huellen, who studies financial speculation in food markets, pointed out in late 2022 that while there are indeed food shortages, “the current food crisis is a price crisis, rather than a supply crisis.”

The end of the Black Sea grain initiative is indeed regrettable, but it is not the leading cause of hunger in the world. The leading cause – as even the European Economic and Social Committee agrees – is financial speculation in food markets.

Why did Russia suspend the initiative?

To monitor the Black Sea grain initiative, the United Nations set up a Joint Coordination Center (JCC) in Istanbul. It is staffed by representatives of Russia, Turkey, Ukraine and the United Nations.

On several occasions, the JCC had to deal with tensions between Russia and Ukraine over the shipments, such as when Ukraine attacked Russia’s Black Sea Fleet – some of whose vessels carried the grain – in Sevastopol, Crimea, in October 2022.

Tensions remained over the initiative as Western sanctions tightened, making it difficult for Russia to export its own agricultural products into the world market.

Russia put three requirements on the table to the United Nations regarding its own agricultural system.

First, Moscow asked that the Russian Agricultural Bank – the premier credit and trade bank for Russian agriculture – be reconnected to the SWIFT system, from which it had been cut off by the European Union’s sixth package of sanctions in June 2022.

A Turkish banker told TASS that there was the possibility that the EU could “issue a general license to the Russian Agricultural Bank” and that the bank “has the opportunity to use JPMorgan to conduct transactions in US dollars” as long as the exporters being paid for were part of the Black Sea grain initiative.

Second, from the first discussions about the grain initiative, Moscow put on the table its export of ammonia fertilizer from Russia both through the port of Odessa and of supplies held in Latvia and the Netherlands.

A central part of the debate has been the reopening of the Togliatti-Odessa pipeline, the world’s longest ammonia pipeline. In July 2022, the UN and Russia signed an agreement that would facilitate the sale of Russian ammonia on the world market.

Guterres went to the UN Security Council to announce, “We are doing everything possible to … ease the serious fertilizer market crunch that is already affecting farming in West Africa and elsewhere. If the fertilizer market is not stabilized, next year could bring a food supply crisis. Simply put, the world may run out of food.”

On June 8, 2023, Ukrainian forces blew up a section of the Togliatti-Odessa pipeline in Kharkiv, increasing the tension over this dispute. Other than the Black Sea ports, Russia has no other safe way to export its ammonia-based fertilizers.

Third, Russia’s agricultural sector faces challenges from a lack of ability to import machinery and parts, and Russian ships are not able to buy insurance or enter many foreign ports. Despite the “carve-outs” in Western sanctions for agriculture, sanctions on firms and individuals have debilitated Russia’s agricultural sector.

To counter Western sanctions, Russia placed restrictions on the export of fertilizer and agricultural products. These restrictions included the ban on the export of certain goods (such as temporary bans of wheat exports to the Eurasian Economic Union), the increase of licensing requirements (including for compound fertilizers, requirements set in place before the war), and the increase of export taxes.

These Russian moves come alongside strategic direct sales to countries such as India that will re-export to other countries.

In late July, St Petersburg will host the Second Russia-Africa Economic and Humanitarian Forum, where these topics will surely be front and center. Ahead of the summit, President Putin called South Africa’s Cyril Ramaphosa to inform him about the problems faced by Russia in exporting its food and fertilizers to the African continent.

“The deal’s main goal,” he said of the Black Sea grain initiative, was “to supply grain to countries in need, including those on the African continent, has not been implemented.”

It is likely that the Black Sea grain initiative will restart within the month. Earlier suspensions have not lasted longer than a few weeks. But this time, it is not clear if the West will give Russia any relief on its ability to export its own agricultural products.

Certainly, the suspension will impact millions of people around the world who struggle with endemic hunger. Billions of others who are hungry because of financial speculation in food markets are not impacted directly by these developments.

This article was produced by Globetrotter, which provided it to Asia Times.

Vijay Prashad is an Indian historian, editor and journalist. He is a writing fellow and chief correspondent at Globetrotter. He is an editor of LeftWord Books and the director of Tricontinental: Institute for Social Research. He has written more than 20 books, including The Darker Nations and The Poorer Nations. His latest books are Struggle Makes Us Human: Learning from Movements for Socialism and (with Noam Chomsky) The Withdrawal: Iraq, Libya, Afghanistan, and the Fragility of US Power.

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China to boost consumption, private investments

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The Chinese government has launched new campaigns to boost domestic consumption and private fixed-asset-investments after foreign direct investments (FDIs) and exports showed a weakening trend.

The Ministry of Commerce and 12 other government departments on Tuesday unveiled an 11-point plan that aims to encourage people to buy household consumer goods, electric appliances and furniture and to refurbish their homes.

The State Council and the Chinese Communist Party (CCP)’s Central Committee also on Wednesday jointly issued new guidelines that call for supporting private companies in share listings, bond sales and overseas expansion. They instruct government departments to treat private companies in the same way as state-owned enterprises (SOEs).

Chinese officials warned that the West’s “de-risking” plan’s threats to the China economy are growing.

Last year, the US accelerated its “friend-shoring” and “near-shoring” plans. It treats India and Vietnam as its “friend-shoring” destinations and Mexico as its top “near-shoring” place. It also called on its allies to follow suit.

Falling orders

In the first half, China recorded a 3.97% year-on-year drop in total exports, the General Administration of Customs said on July 13. The fall was mainly caused by a slowing demand from western countries.

China’s FDIs fell 5.6% year-on-year in the first five months of this year, according to the Ministry of Commerce.

As many factories are either downsizing or leaving China, the youth unemployment rate recorded a high at 21.3% in June from 20.8% in May. Many workers also suffered from pay cuts and unstable income, said media reports.

The year-on-year growth of retail sales of consumer goods fell to 3.1% in June from 12.7% in May, partly because of a weak demand in the real estate markets.

Shen Quiping. Photo: State Council Office

“Due to the influence of multiple factors, the retail sales of home appliances, furniture, home decoration and other household products remained weak,” Shen Qiuping, vice minister of commerce, said in a media briefing about domestic consumption on Tuesday. He said retail sales of electric appliances and household products grew only 1% and 3.8%, respectively, in the first half from a year ago while sales of construction materials fell 6.7%.

He said the government’s 11-point plan is aimed at encouraging people to renovate their homes – for example, by allowing people to withdraw pensions in advance to upgrade their or their parents’ living facilities. He said that, from the supply side, the government will encourage manufacturers to launch innovative household products for the markets.

Xu Xingfeng, director general of the Department of Consumption Promotion of the Ministry of Commerce, said provincial and municipal governments will hold exhibitions and sales promotion activities.

He said the nation will groom five international consumption cities – Shanghai, Beijing, Guangzhou, Tianjin and Chongqing – and build 2,057 shopping centrer that can be reached by people within a five to 10 minute walk from home across 80 cities.  

He said the government will also set up recycling centres to handle old home appliances.

Last month, many cities announced their plan to deliver consumption vouchers to the public. Each person can get vouchers worth from 100 to 500 yuan to buy home appliances.

‘Three-horse carriage’

Consumption, fixed-asset investments and exports combined are dubbed the “three-horse carriage,” the main driver of the Chinese economy. When consumption and exports are weak, the Chinese government can order state-owned-enterprises (SOEs) to boost investments but cannot do much to motivate the private ones.

Fixed-asset investments grew 3.8% in the first half from a year earlier, thanks to an 8.1% growth in the investments by SOEs, the National Bureau of Statistics (NBS) said Monday. For the same period, private fixed-asset investments fell 0.2% as investment from Hong Kong, Macau and Taiwan companies dropped 3.4%.

According to the guidelines released by the CCP Central Committee and the State Council, China will help remove barriers in market access and fully implement policies and mechanisms for fair competition. 

The country said it will protect intellectual property rights, the property rights of private firms, and the legitimate rights and interests of entrepreneurs as part of the legal guarantee for the growth of the private economy. More policy support will be provided to facilitate financing for companies and meet labor demand.

“Some countries have forcibly promoted ‘decoupling’ and so-called ‘de-risking,’ artificially setting up obstacles to hinder normal economic and trade exchanges,” Li Xingqian, director general of the Department of Foreign Trade of the Ministry of Commerce, said in a media briefing on Wednesday.

“Companies told us that certain countries politicized trade issues, resulting in the forced outflow of orders and production capacity, which harmed the economic interests of both suppliers and buyers,” Li said. 

However, he added that China is still full of confidence that it can overcome these difficulties and challenges.

“The supply chain of China’s foreign trade industry chain has strong resilience,” he said. “China’s foreign trade enterprises have been honed and grown up in the international market competition and have inherent innovation capabilities.”

Li said on June 8 that after the pandemic, the resumption of production in neighboring countries had resulted in an outflow of China’s foreign trade orders but the trend is controllable while its impact has been limited. 

He said it’s normal for some companies to choose to move their manufacturing facilities outside China as the country continues to upgrade its industrial sectors. He said the shift can be attributed to the international industrial division of labor.

Other officials also offer optimism mixed with caution.
 
“Given that the first-half GDP growth reached 5.5% and the base in the fourth quarter of last year was low, it should not be a problem for China to meet its 5% GDP growth this year,” Xu Gao, chief economist of Bank of China International (China) Co Ltd, writes in an article published by Guancha.cn on Wednesday. “But it does not mean that the economic situation is satisfactory.” 

“To stabilise demand, we can only rely on boosting domestic consumption as we have no control of the external demand, especially when the future prospects remain not optimistic,” Xu says.  

He says China’s fixed-asset investment was slowed by the poor property markets while the government should do more to stimulate homebuyers’ demands.

Read: China’s June exports hit by weak Western demand

Follow Jeff Pao on Twitter at @jeffpao3

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Dollar angst boils up at worst moment for markets 

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The investment world has seen no bigger widow-maker trade this last decade than shorting the US dollar. Yet recent volatility in the reserve currency has punters once again asking whether the great dollar reckoning is finally afoot?

No one knows, of course. The dollar’s sudden and sharp drop in recent days, though, has the whiff of exactly the sort of foreign-exchange shock for which markets have been bracing. As investors wait to see if things unravel, finally, it’s worth exploring how bad things might get.

For now, the dollar’s stumble can easily be explained by shifting considerations of interest rate differential expectations. As strategist Steven Barrow at Standard Bank puts it: “Our call for the dollar to enter a multi-year downtrend is partly based on the fact that the Fed’s tightening cycle will morph into an easing cycle, and this will pull the dollar down even as other central banks cut as well.”

News that inflation rose just 3% in June year on year, a third of the rate of increase a year before, suggests that the most aggressive Federal Reserve tightening cycle in three decades is winding down. The Bank of Japan, by comparison, is locked in place policy-wise, while the People’s Bank of China is in rate-cut mode.

Yet currency crises tend to come very suddenly. It doesn’t take much for a stumble to morph into the real thing. Once a critical mass of global investors starts taking a serious look at the dollar’s fundamentals, things could go south at warp speed.

Chief among the negative data points: a fast-widening current-account deficit; a national debt topping US$32 trillion; highly indebted households, buckling under the weight of hundreds of basis points worth of higher borrowing costs; President Joe Biden’s move to weaponize the dollar to punish Russia over Ukraine; trade friction with China; and a level of political bickering in Washington that has Fitch Ratings mulling a downgrade.

“There’s little evidence, however, of a sustainable uptrend in dollars at this point,” says J C Parets, founder and president of advisory AllStarCharts.com. “In fact, the majority of the data continues to point towards a lower US dollar.”

Strategist Masafumi Yamamoto at Mizuho Securities thinks the dollar will remain “under pressure” unless new evidence emerges that the US economy is “outperforming other countries.”

Economist Edward Bell at Emirates NBD says indications are that “the dollar’s prime position appears largely unchallenged, thus far. But there are developments that may yet drive a longer-term shift away from the US dollar, including the use of sanctions as a US foreign policy tool. There has also been a rise in bilateral agreements to settle trade in local currencies rather than the US dollar.”

A key problem, of course, is a lack of ready alternatives. Analysts at Fitch Analytics argue that “while the US dollar’s role will continue to decline over the coming years, it will be a slow erosion, rather than a paradigm shift. Most importantly, there is no real alternative to the US dollar, and the Chinese yuan is unlikely to become one in the near future.”

Bell adds that “despite a potential longer-term desire amongst some economies to diversify away from the dollar, there are also some fundamental stumbling blocks that may slow or limit this process.” As the International Monetary Fund has suggested, Bell notes, “there is significant inertia in reserve currency status, with a strong bias to using whichever reserve currency has been dominant in the most recent past.”

One possible reason for this inertia, Bell says, “may be the US dollar’s safe-haven status, evident in the perennial demand for US government bonds, even during times when there is heightened risk within the US economy itself. There is also a lack of feasible alternatives, with both the euro and the yuan facing their own issues as real challengers to the dollar.”

Yet little of this will matter if fundamentals get away from Washington. In 1971, Nixon-era Treasury Secretary John Connally famously said that the “dollar is our currency, but it’s your problem.” Fifty-two years later, Asia is on the frontlines of this very phenomenon.

The dollar has peaked both in cyclical and secular terms,” says strategist Luca Paolini at Pictet Asset Management. “The overvaluation is significant and our models show the dollar is 20% above its fair value versus a basket of currencies. US productivity growth is weak, fiscal policy is too loose and interest rate differentials are no longer supportive of the US currency. The dollar’s depreciation is likely to be particularly pronounced against low-yielding currencies, such as the Swiss franc.”

The risk is that investors turn on the dollar en masse, setting off a disastrous domino effect. It’s then that the poor financial fundamentals unnerving markets collide with geopolitical tensions. A big one is governments from China to Russia to Saudi Arabia searching for alternatives.

The ways in which the Biden White House moved in 2022 to freeze some of Russia’s currency reserves only encouraged the anti-dollar movement.

In April, US Treasury Secretary Janet Yellen acknowledged that “There is risk when we use financial sanctions that are linked to the role of the dollar that over time it could undermine the hegemony of the dollar.” Yet, she added, the dollar “is used as a global currency for reasons” that include the fact it is “not easy for other countries to find an alternative with the same properties.”

Julius Sen, a political economy expert at the London School of Economics, notes that the term weaponization is “apt as it explains how a relatively neutral but essential facility – the dollar and its accompanying payment system – have been turned into a powerful weapon by one UN member state against another without appropriate sanctions in place.” In addition to amounting to weaponization, the freeze on Russian currency reserves “also represents an aggressive form of extraterritoriality which has perhaps not been seen on this scale in the past.”

Washington’s use of the dollar to gain political leverage could drive other countries to “find their own coping mechanisms,” Sen says. Possible mechanisms that he lists include diversifying into other currencies, shunning dollar-denominated assets and turning to capital controls.

For China’s yuan, the lack of full convertibility remains a turnoff for many global investors. And, in the short run, so is concern that Asia’s biggest economy is veering toward deflation.

Analyst Kelvin Wong at OANDA warns that “further yuan weakness is likely to put more financial burden on the current offshore bonds payment obligations of Chinese property developers where the property industry still faces a credit crunch issue due to a weak internal demand environment.”

What’s more, Wong adds, “brewing financial stress of major Chinese property developers is on the rise again: Prices of their onshore dollar bonds tumbled significantly in the last two days.”

Adding to the PBOC’s list of worries, Wong says, are a trading halt announcement made by Sino-Ocean Group in a local note that is due to mature in two weeks and Dalian Wanda Group’s issuance of a warning to its creditors of a funding shortfall for a bond that is due for redemption on July 23.

The bottom line, Wong says, is that “failure to negate the current negative sentiment in the China stock market may further reinforce a negative feedback loop into the real economy which in turn increases the risk of a deflationary spiral.”

Yet the dollar’s downward trajectory could have the yuan moving higher in the second half of 2023. Strategist Kit Juckes at Société Générale thinks the dollar could soon return to its December 2020 lows.

“As was the case in January/February before the SVB mini crisis, the market is anticipating the peak in US rates and a further narrowing relative rates,” Juckes notes. “If nothing happens to scupper those expectations — another upside surprise in US growth, or further European growth disappointment — I would expect the Dollar Index to move closer but not all the way to the lows at the end of 2020.”

After that, no one really knows. The typical financial dynamics and yardsticks are far less applicable in today’s market environment.

“We’ve got a one-in-a-100-years pandemic and a once-in-75-years war and a-once-in-25-years energy crisis all thrown into the mix together,” Juckes explains. “You’ve got to be 120 years old to have any understanding of this.”

One such imponderable today is how central banks and governments tame inflation emanating from non-monetary sources — including from supply chain tensions beyond policymakers’ control.

“The great lingering fear among central banks is that the longer it takes to bring down inflation, the greater the risk of it becoming entrenched,” says economist David Bassanese at BetaShares Exchange Traded Funds.

That’s why, notes George Saravelos, global head of FX research at Deutsche Bank, “a confirmation that the US disinflation process is underway in soft landing conditions is for us the most important macro variable for the rest of the year.”

Yet no risk trumps that of the dollar, the linchpin of international finance, finally having its comeuppance. It’s too early to say that this long-awaited reckoning is afoot. If it is, economies everywhere will quickly find themselves in harm’s way.

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China exports shift south

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Preview of this week’s Global Polarity Monitor: China’s exports fell 12.4% YoY in June, mainly due to weakness in development markets and the global electronics industry. Taiwan’s exports were down 19.6%, by way of comparison. But there are some notable patterns in the Chinese data. Exports to the Global South fell from an historic high, and continue to surpass exports to developed markets. EV exports led a surge in exports to Russia, shunned by European automakers. Turkey and Mexico both showed strong growth. Although exports to ASEAN were down, they are still at double the level of 2017. China’s exports to the Global South have a high proportion of capital and intermediate goods, including digital infrastructure. That contributes to China’s goal of raising productivity through AI and high-speed data transmission.

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Some Singapore firms turn to Indian cities for talent pool, production boost, cheaper cost

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Another Singaporean business, sofa maker HTL, expanded its production capacity into India in 2021 with manufacturing plants in both Chennai and Pune, in the western Indian state of Maharashtra.

The company hopes its presence in India will help to enlarge its footprint on the global stage.

“(India) has very strong domestic demand, and is a great place to export to different parts of the world, specifically to the US, UK, Middle East and even parts of Southeast Asia,” said the firm’s global brand head Celeste Phua.

With its two Indian facilities, the firm said it can cut down shipping time to regions like the Middle East by 70 per cent.

The large pool of skilled workers is also helping the company boost its productivity.

“The sofa is a handicraft item. So India works very well because a lot of the (workers can) sew and cut. India also provides a very rich and diverse labour workforce for us to tap on, and expand our manufacturing capacity,” Ms Phua said.

WASTE MANAGEMENT SECTOR

Some firms are also looking to harvest growing opportunities in India’s waste management sector, especially as the Asian giant puts in motion efforts to go greener.  

This includes turning trash, such as disposed electronic goods, into precious resources.

Chennai is among the most populous cities in India and it produces more than 5,000 tonnes of waste each day.

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SEMICON events transcend the chip wars

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SEMI, the international association representing the semiconductor equipment and materials industry and other parts of the electronics manufacturing and design chain, recently held two annual regional exhibitions and conferences: SEMICON China in Shanghai and SEMICON West in San Francisco.

Judging from the large number of exhibitors and wide range of technologies presented at the events, it is obvious that the global semiconductor industry is endeavoring to maintain cohesion despite the interference and interventions of tech war-agitating politicians.

SEMICON China 2023 was held at the Shanghai New International Expo Center from June 29 to July 1, attracting a record 1,100 exhibitors from China, Japan, Korea, Europe and the US.

Related forums discussed integrated circuit (IC) manufacturing technology and supply chain issues, automotive IC design, power and compound semiconductors, carbon neutrality and sustainability, and workforce development.

It was the largest of the regional SEMI exhibitions, which in the words of its sponsor was “a key enabler of collaboration and innovation across the entire electronics supply chain including chip design, manufacturing, assembly and test, equipment and materials.”

The exhibition was preceded by the China Semiconductor Technology International Conference (CSTIC), organized by SEMI and the Institute of Electrical and Electronics Engineers (IEEE) together with the Institute of Microelectronics, Chinese Academy of Sciences.

It was held on June 26 and 27 in Shanghai and virtually from June 29 to July 26 at SEMI Cloud. 

The conference featured symposiums covering manufacturing processes, systems integration, materials, equipment, device and circuit design, and emerging semiconductor technologies.

Topics such as artificial intelligence, 6G, neuromorphic computing, advanced memory, 3D integration and Micro Electro Mechanical Systems (MEMS) were also addressed.

Sponsors included Advanced Micro-Fabrication Equipment (AMEC), Naura and Anji from China; Tokyo Electron and Fujifilm from Japan; ASM, Edwards and Zeiss from Europe; Applied Materials, Lam Research and KLA from the US; and ACM Research, which was founded in California but now conducts most of its product development, manufacturing and service activities through its subsidiary in Shanghai.

ACM Research owns an extensive patent portfolio in deposition and photoresist processing, single wafer and batch wet cleaning, electroplating, stress-free polishing, wafer manufacturing and packaging. It remains active in North America and also has operations in Europe, South Korea and elsewhere in Asia.

ACM Research’s example shows how difficult actual decoupling might be and how much semiconductor-related technology is already available in China.

Chip-makers and chip-making equipment firms showed their wares and discussed latest industry trends at SEMICON events. Image: Facebook

AMEC makes etch and deposition equipment. It has gained traction both in China and overseas, notably with Taiwan’s TSMC, the world’s largest chip producer. AMEC recently won a legal battle in a Shanghai court against Lam Research, which had accused it of infringing on its etch-related patents.

The diversified Naura Technology Group makes etch, deposition, oxidation/diffusion, cleaning, annealing and other types of semiconductor production equipment.

Preliminary figures from AMEC and Naura indicate that their profits more than doubled year-on-year in the six months to June on sales growth of nearly 30% for AMEC and more than 60% for Naura.

This performance is attributed to US sanctions, which have led Chinese semiconductor makers to turn to domestic equipment makers.

Anji Microelectronics manufactures chemical mechanical polishing (CMP) slurries, post-CMP and post-etch cleaning solutions, photoresist strippers and other wet chemicals and additives used in the semiconductor manufacturing process.

SEMICON West 2023, North America’s most prominent microelectronics exhibition and conference, was held from July 11 to 13 at the Moscone Center in San Francisco.

Its overarching themes were supply chain disruptions, climate change and sustainability, and talent shortages – issues key to the long-term growth of the semiconductor industry.

Government investment in chip manufacturing, smart manufacturing with data and AI, heterogeneous design and integration using advanced packaging technology, smart mobility, smart medtech and other topics were also addressed.

Advanced packaging received particular attention from Interuniversity Microelectronics Centre (imec), Applied Materials and others.

Cerebras Systems of Sunnyvale, California, won the 2023 SEMI Award for North America for process and technology integration for developing the world’s largest integrated circuit chip for complex artificial intelligence (AI) computation applications training with very large AI databases.

As reported in the daily SEMICON digest on July 12, Cerebras, “implemented wafer-scale integration with advanced packaging and system design for AI and other deep-learning applications as standalone units and in clusters for large-scale data centers.”

The Design Automation Conference (DAC) 2023, which ran from July 9 to 13, was held across the street from SEMICON West. DAC exhibitors and participants covered electronic design automation, artificial intelligence and machine learning, embedded systems and software, automotive applications, RISC-V, and intellectual property and data security issues. Both events were crowded, with attendance reaching pre-Covid levels.

SEMI also released its mid-year semiconductor equipment forecast at SEMICON West, predicting an 18.6% decline in total sales of wafer fab, assembly & packaging, and test equipment to US$87.4 billion in calendar 2023, followed by a 14.4% rebound to an even $100 billion in 2024.

Forecasting a big round number would seem to indicate a fair amount of uncertainty, but SEMI is not alone in this regard.

SEMI did not publish a forecast for 2025, but its president and CEO, Ajit Manocha, said “Projections for robust long-term growth driven by high-performance computing and ubiquitous connectivity remain intact.”

Manocha, formerly CEO at GlobalFoundries, added that “Despite current headwinds, the semiconductor equipment market is set to see a strong rebound in 2024 after an adjustment in 2023 following a historic multi-year run.”

Sales of wafer fab equipment – including wafer processing, clean room and other facilities and mask/reticle equipment – are forecast to drop 18.8% to $76.4 billion in 2023 and then rebound by 14.8% in 2024, accounting for a fairly steady 87-88% of the total.

Sales of assembly & packaging equipment are expected to be more volatile and sales of test equipment less so, but they have a relatively small impact on the overall trend in capital spending.

The cycle is being driven by memory chips. Equipment sales to makers of NAND flash memory are forecast to drop by 51% to $84 billion this year and then rebound by 59% to $13.3 billion in 2024.

DRAM equipment sales, meanwhile, are forecast to drop by 28% to $8.8 billion this year and rebound by 31% to $11.6 billion in 2024.

Logic IC and foundry related demand is much more stable. It is forecast to decline by 6% to $50.1 billion this year and then rise by 3% to $51.6 billion in 2024.

China, Taiwan and South Korea remain the three largest markets for semiconductor equipment. SEMI expects Taiwan to take the lead this year and China to regain it in 2024.

SEMI data; Asia Times chart

The Semiconductor Equipment Association of Japan (SEAJ) has cut its sales forecast for fiscal 2023 (ends March 2024) from -5% to -23%.

The downturn has turned out to be more severe than the SEAJ had originally anticipated and reality has set in as fantasies about the metaverse and a quick rebound in PC and smartphone sales have faded.

Tokyo Electron, Japan’s leading semiconductor production equipment maker, had been touting a concept called MAGIC (metaverse, autonomous vehicles, green energy, IoT & information, and communications).

Now, CEO Toshiki Kawai, who is also chairman of the SEAJ, says the recovery of memory demand has been slower than initially expected.

Meanwhile, Samsung’s DRAM production is at a two-year low and, according to reports from South Korea, is likely to remain subdued for the rest of this year, with capacity expansion pushed out until there are clear signs of recovery in demand.

The SEAJ now expects semiconductor capital spending to come roaring back stronger than ever in fiscal 2024 and 2025, with rises in sales of Japanese equipment of 30% next year and 10% the year after catapulting the industry to new record highs.

It its view, the metaverse has been replaced by ChatGPT, electric vehicle and renewable energy demand remains strong, and a smart phone replacement cycle appears to have begun.

SEAJ data; Asia Times chart

A forecast must be made, but that doesn’t mean it will turn out to be correct. A year ago, the SEAJ forecast 3.7% sales growth for fiscal 2023.

And it remains to be seen how sanctions on China and China’s retaliatory restrictions on exports of the niche chip-making metals gallium and germanium might drag down sales over the coming year.

Follow this writer on Twitter: @ScottFo83517667

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Asia’s ESG investors must ‘re-imagine role of capital’ | FinanceAsia

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A version of this story was first published by sister title, AsianInvestor.

Infrastructure investors in Asia can promote a new, more ambitious role for capital in funding social and environmental development, according to Nikhil Chulani, investment director covering the industries, technology and services sectors at British International Investment.

“On the markets that we at BII focus on in Africa and South Asia, there are huge opportunities for growth and achieving greater scale,” he told an audience at the Sovereign Wealth Fund Institute conference in London in June.

“To accelerate progress in realising the potential of these opportunities, one key aspect is vision and ambition, and tapping into creative solutions via financial services sector to re-imagine the role of capital.” 

The UK development finance institution currently invests between $1.5 and $2 billion per year in Asia, Africa and the Caribbean.

He noted that, as ESG investing broadens from a focus on people to include the environment, the scope of allocations, and the range of problems they address, is widening. He said developing bottom-up strategies is more important than ever.

Being able to clearly identify and articulate which problems investors are aiming to address with their allocation is crucial, he added, emphasising the need to integrate impact and financial return within an investment model.

“Having an impact doesn’t exist separately from investing, it is a core part of investing,” Chulani said, adding that, while many investors still saw the ESG potential of their investment as distinct from its investment potential, attitudes were changing.

Size matters

Michael Anderson, who was director general between 2010 and 2013 of the UK’s Department for International Development, a government department that was responsible for more than $6 billion in annual aid programmes, said that a pressing question for enterprises and projects with a social or environmental dimension was achieving the scale necessary to unlock large investments.

“It’s not that we need to do more to attract major investors, but when they are attracted they need to have the deal flow to enable large ticket sizes,” he said.

“Big investors with multibillion dollar funds can’t go after small deals,” he added. “The key challenge is thinking at a bigger scale, especially in areas beyond infrastructure.”

“There has been some good investment in green infrastructure, but not enough in other areas,” he noted, pointing to social services, social infrastructure, and businesses designed to have a positive social impact.

Anderson, who is founder and CEO of MedAccess, a social enterprise improving access to medical innovations wholly owned by the British International Investment, gave the example of essential medicines. 

“The critical reason that these drugs are not getting into markets where they are needed is that the companies who manufacture them don’t find it commercially viable to sell into those markets,” he said. 

Investors were essential in providing the “catalytic finance” to de-risk distribution into less profitable markets, he added. 

Anderson gave the example of a recent TB drug project mediated by MedAccess, where the finance provided reduced the per dose cost from $40 to $15. MedAccess also facilitated increased production by the drug company and worked with companies to secure distribution. 

“Sometimes this means lower margins [for manufacturers],” he noted. 

Local opportunities

However, Ana Nacvalovaite, research fellow at the Centre for Mutual and Co-owned Business to Kellogg College, University of Oxford, speaking at the same session, said small-scale, local projects offered considerable opportunities for ESG investors, given their strong social and environmental credentials in many cases.

Such projects that are aimed at securing specific social or environmental outcomes often involve joint investment by development banks alongside sovereign and other institutional investors such as pension funds.

But those institutions best placed to provide such “blended finance” are not necessarily the biggest, Nacvalovaite observed, pointing to the example of funding for rural farm co-operatives in Rwanda.

“The [Government Pension Fund of Norway] has its hands tied, since approval is required by the ministry of finance. But Rwanda’s fund [the Agaciro Development Fund, launched in 2012] could trial this. It is the right size and Rwanda has lots of co-operatives, so they are looking at these blended finance opportunities,” she said.

Nacvalovaite said that while single project investments with a finite lifecycle might produce tangible environmental or social benefits during their lifetime, they also created challenges when they complete.

“The community that has been built up around it has to pack up and move on,” she said.

By contrast, financing co-operatives and employee-owned businesses provided longer lasting social outcomes. “We are talking about people creating their own infrastructures,” she said.

 

¬ Haymarket Media Limited. All rights reserved.

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Singapore launches mandatory climate reporting consultation | FinanceAsia

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Earlier this month, Singapore’s Accounting and Corporate Authority (Acra), together with Singapore Exchange Regulation (SGX RegCo), instigated a public consultation on a proposed set of mandatory climate-related disclosures (CRDs). The two bodies partnered in June 2022 to form Singapore’s Sustainability Reporting Advisory Committee (Srac).

The public consultation runs from July 6 until September 30, during which the public can access related documents through a portal on Acra and RegCo’s websites and submit feedback via a designated form. The two bodies (Acra and SGX RegCo) plan to consider public feedback and finalise the recommendations by 2024.

If further amendments are proposed to listing rules around sustainability reporting, a separate consultation will launch before the end of the year, SGX RegCo added in a press release.

The mandatory CRDs will require issuers listed on the Singapore Exchange (SGX) to report their climate impact in line with the standards set by the International Sustainability Standards Board (ISSB), starting from financial year 2025 (FY2025). 

Similar requirements for large non-listed companies with annual revenue of over $1 billion will be mandatory starting from FY2027, according to the recommendations. In doing so, Singapore becomes among one of the first markets in Asia to consult on CRDs that are set to affect large, non-listed companies. 

“To transition to a net zero economy, we need the critical mass to move the needle. With more companies adopting climate related disclosures, we are better able to drive actions and impact to meet our climate targets and make Singapore a better and more sustainable place for our future generations,” Esther An, chair of Srac told FinanceAsia.

New requirements

The new recommendations advance the city-state’s current reporting requirements, which were initially introduced in a phased manner in late 2021 to elevate Singapore’s role in Asia’s ESG arena and to uphold its position as a global business hub.

The market’s current CRDs require listed companies active in five prioritised carbon-intensive industries (finance; energy; transportation; materials and buildings; agriculture, food and forest products) to submit data related to their corporate climate impact.

However, the proposed amendments expand these requirements to all issuers listed on the SGX.

All SGX-listed corporates will be required to report their scope 1 and 2 emissions – those direct emissions that result directly from their activity or their production processes. 

Corporates will also be required to submit data around scope 3 emissions – the indirect pollutants that result from the full breadth of a company’s supply chain. However, because these involve more complex calculation, Srac is offering companies one to two years to prepare for these reporting requirements before having to submit exact data, the press release explained.

“Scope 3 emissions are typically the largest component of many companies’ greenhouse gas emissions,” An elaborated to FA.

“To facilitate companies in making the disclosure, the ISSB standards have provided relief. For example, the standards allow the use of estimates to prepare this disclosure when the information cannot be obtained without undue costs and efforts,” she explained.

External assurance on scope 1 and 2 emissions provided by Acra-registered audit firms will be expected from all listed firms starting FY2027, and from large non-listed companies starting FY2029, according to the recommendations. 

Dominoes

Commenting on the new disclosure requirements, Helge Muenkel, chief sustainability officer at DBS Bank told FA, “By starting with economically significant non-listed companies in Singapore, the goal is to eventually create a domino effect with better quality ESG data across the value chain, especially in relation to scope 3 emissions.”

As a Singapore-headquartered lender, DBS has been an active participant in Singapore’s sustainability effort. The bank announced in early July that it had upskilled over 1,600 institutional banking relationship managers and 170 credit risk managers to deepen their knowledge of sustainable financing practices, in order to better help corporate clients navigate the sustainability landscape.

Last September, market regulator, the Monetary Authority of Singapore (MAS) and SGX collaborated to launch a platform, ESGenome, aimed at enhancing companies’ ESG reporting processes, FA reported.  The assistance provided by the capability includes processes for sustainable procurement across supply chains.

To further facilitate large non-listed companies that are new to climate reporting, Srac suggests that scope 3 emissions need only be disclosed in the third year of mandatory reporting, An added.

The Srac team confirmed that mandatory CRDs for large non-listed companies with revenue over $100 million is set to commence from FY2030, but this timeline will be further reviewed in 2027, depending on the outcome from implementation of the current recommendations. 

“With more countries pledging for net zero and the rising carbon cost globally, climate strategy and reporting can help companies, listed or non-listed, to mitigate and adapt to risks in the transition to a low carbon economy,” An said. 

Whether the requirements will expand to include other aspects of ESG-related reporting remains undecided. The recommendations begin with CRDs as a starting point, An said, emphasising the urgency to combat climate change.

¬ Haymarket Media Limited. All rights reserved.

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Washington myopia undercuts Indo-Pacific partners

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Over the last few weeks, Washington has been abuzz with everything India. On June 22, President Joe Biden, cabinet secretaries and the US Congress gave a rousing reception to visiting Indian Prime Minister Narendra Modi.

For his part, the prime minister cheered Republican and Democratic congressmen with his quip that he could “help them reach bipartisan consensus,” referring to the across-the-aisle support India enjoys in Washington.

It was certainly an apt decision to honor the Indian leader, given that the US-India partnership has significantly expanded under Biden. Both the White House and several members of the Biden administration, from National Security Advisor Jake Sullivan to Indo-Pacific Coordinator Kurt Campbell, have characterized it as the “most important bilateral relationship of the 21st century.”

However, over the last few months, some of the Biden administration’s regional policies in the Indo-Pacific have done more harm than good to its partners, particularly hurting India and its geopolitical leverage in the Indo-Pacific region. 

The Biden administration’s foreign policy cut a significant departure from its predecessors until last month, when it returned to Washington’s old ways: myopic democratic interventions, benevolent outreach to adversarial nations and partisan bickering.

Over the last few weeks, Washington’s primary Indo-Pacific partners, India and Japan, have borne the brunt of these missteps.

Biden, in a last-minute change of plans, canceled his scheduled trip to Papua New Guinea and Australia to address the debt ceiling crisis in Washington, with Republicans stalling the Democrats from raising the debt ceiling levels.

While Secretary of State Antony Blinken went ahead with his own trip to Papua New Guinea and signed a crucial defense agreement with the Pacific Island nation, Biden’s cancelation of that leg of the tour was not the best messaging to a region increasingly falling under China’s orbit.

Prior to Biden’s cancellation, the Indian government had decided to accommodate his visit and cut short Indian official visits as a courtesy to the incoming American presidential delegation. Modi went ahead with his travel itinerary as scheduled – and turned it into an opportunity to showcase India’s position on the global stage.

Prime Minister Narendra Modi arrived in Papua New Guinea on May 21 and a rare moment was seen at the Port Moresby airport when PNG Prime Minister James Marape, in a traditional welcoming gesture, touched Modi’s feet and sought his blessings. Photo: NDTV

New Guinea Prime Minister James Marape hailed Modi as the leader of the Global South. Taking an implicit jab at the United States and China, the island nation leader told Modi, “We are victims of global power play, and you are the leader of Global South. We will rally behind your leadership at global forums.”

While this was a minor setback for a coordinated approach toward Chinese expansionism in the Pacific, the Indian Ocean challenge is a more geopolitically complex Gordian knot.

In mid-May, Blinken threatened Bangladesh with sanctions if the Indian Ocean state did not host free and fair elections in the 2024 poll. Suppose the United States were to follow through with its threat.

In that case, India and Japan would be in a quandary as they have consistently positioned Bangladesh as a gateway connecting the Indian subcontinent to Southeast Asia for supply chain and infrastructure connectivity initiatives.

Geographically, Bangladesh is nestled between India’s state of Bengal to the west and India’s northeastern provinces to the east, bordering a thin strip of land the connects the rest of India to the northeast (also known as the “chicken’s neck”).

Thus the densely populated country’s interaction with the rest of the world is directed through India or the Bay of Bengal and the Indian Ocean.

Both New Delhi and Tokyo have invested in infrastructure in the region and have long-term plans to invest in Dhaka’s growth. Recently, Japan and India agreed to jointly develop the Matabari deep-sea port in Bangladesh to serve as a “strategic anchor” in the Indian Ocean.

Though often underreported, Japanese investment plays a vital role in South Asian development. Japan is also undeniably India’s Northeast region’s major infrastructure and development partner.

Development assistance projects supported by Japan in India’s Northeast amount to more than 231 billion yen ($1.7 billion). Graphic: Japanese government

Through the Bay of Bengal-Northeast India Industrial Value Chain, the Japanese government envisions increased connectivity between India’s landlocked northeast and Southeast Asia, creating a single economic zone and an alternative trade connectivity project to China’s Belt and Road Initiative.

Japanese prime minister Fumio Kishida, articulating his government’s Free and Open Indo-Pacific strategy in New Delhi in early March this year, called for increased integration of India’s Northeast with Bangladesh to transform the region into a single economic zone.

Moreover, Japan is attempting to capture the businesses moving out of the pricier markets of Southeast Asia, using the Bay of Bengal region. Japan’s regional strategy has neatly complemented the Modi government’s policies.

Modi transformed the older “Look East” policy into an “Act East” policy of increasing strategic and economic engagement with Southeast Asia as a countervailing force to China’s involvement in the region. 

Tokyo has slowly and steadily supported this transformation. A case in point is Tokyo and New Delhi’s hosting of the India-Japan Act East forum to discuss cooperation on a range of projects that will increase connectivity in India’s Northeast to Southeast Asia.

India’s Northeast has a history of civil unrest and strife, making it a challenging region for development. Furthermore, its landlocked topography and poor infrastructure limited its connectivity to both its neighboring countries and the rest of India. Only a party interested in the long game or having a vision for the region could invest in that part of the world, and in this case it is Japan.

Interestingly, as an extension, both Japan and India are engaging the immediate eastern neighbor to Bangladesh and India, Myanmar. Sanctioned by the United States, Myanmar has limited partners on the world stage. Nonetheless, Japan and India have continued engagement with the military junta to prevent the nation from falling entirely under China’s influence.

There, once again, Indo-Japanese interests are affected by America’s sanctions. In May, India-Myanmar inaugurated the Sittwe port in the Rakhine state of Myanmar. India supported this port to enhance sea lane connectivity between India’s eastern states and Myanmar.

However, since the sanctions, Indian companies have either had to depart Myanmar altogether or face global scrutiny for working with the military junta-led government.

India-financed Sittwe Port in Myanmar. Photo: PTI

As satellite images released earlier this year indicated, increased activity on the Great Coco Islands of Myanmar had the markings of Chinese military involvement. With the Great Cocos less than thirty miles north of India’s Andaman and Nicobar Islands, any potential militarization of the Coco Islands by the Chinese could pose a significant threat to India’s security in the Indian Ocean.

In this geopolitical equation, India cannot afford to disengage from Myanmar. And yet, America’s economic statecraft is undercutting India’s vital regional partnerships.

Henry Kissinger, who celebrated his 100th birthday in May, summed up this dynamic well: “It may be dangerous to be America’s enemy, but to be America’s friend is fatal.” It is undoubtedly proving so for Japan and India, but more so for New Delhi in the Indian Ocean. 

Against the backdrop of these measures come the Biden administration’s attempts at thawing relations with China. While Biden departs from his predecessors as the only recent president not to ask for Kissinger’s advice, he is beginning to walk in the footsteps of the grand strategist by making attempts to mend ties with China.

Katherine Tai. Photo: Wikipedia

From the dialogue in Vienna to Blinken rescheduling his trip to Beijing for last month to the official abandonment of economic “decoupling” for the less confrontational “de-risking,” Washington’s approach to China shows signs of softening.

While members of the Indo-Pacific Economic Framework for Prosperity (IPEF) agreed on moving ahead with a supply chain agreement in Detroit, US Trade Representative Katherine Tai met with her Chinese counterpart to discuss trade and economic ties in the same week on the sidelines of the APEC meeting.

Washington’s blow-hot, blow-cold approach does not reassure allies and partners – particularly partners that it courts for strategic competition with China – of the consistency of its priorities and policies.

Furthermore, Washington’s skewed sanction policies, opposing democratic backsliding in a few states at the same time it calls for engagement with authoritarian China, raise questions about the motives behind such policies.

While the United States has sanctioned Chinese officials allegedly involved in human rights abuses in Xinjiang, it continues to do massive business with Beijing. This selective condemnation only further isolates partners and strengthens Chinese engagement with the sanctioned nations.

This misbegotten strategy, according to Rob York, director for regional affairs at Honolulu’s Pacific Forum, is “a holdover from America’s unipolar moment that we need to outgrow. America’s moral authority, and the benefits of aligning with Washington, are no longer assumed but must be competed for, and sanctions must be employed far more judiciously than they have been.”

This type of awakening to multipolar realities of the world order should inform Washington of the pitfalls and shortsightedness of its foreign policies. America’s sanctions and other tools of economic statecraft should not be used for democratic interventions but to deter its enemies. If not, the United States will have few allies in its strategic competition with China.

Akhil Ramesh ([email protected]) is a senior fellow at the Pacific Forum and author of the US-India chapter for Comparative Connections: A Triannual E-Journal of Bilateral Relations in the Indo-Pacific.

The article in this version was first published by Pacific Forum. An earlier version appeared in The National Interest. Asia Times is republishing with kind permission.

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