Welcome to Next China. Each week, we take you inside the economic giant that is China. To subscribe to this newsletter directly, click here. This week, we explore China's Golden Week and its special importance, why Beijing is advising companies to avoid Nvidia, and look at what's going viral behind the Great Firewall. Hi, this is Yanping Li in Singapore. This Golden Week holiday in China is indeed quite golden. Domestic investors are likely celebrating after stimulus sent markets roaring. Mainland stocks closed out the final trading day in a bull market. The holiday season typically sees a surge in Chinese travelers, making it a key indicator of consumer spending in the world's second-biggest economy. This has taken on extra significance this year, with economists and traders looking to see if President Xi Jinping's latest stimulus blitz can reinvigorate the country's downcast consumers. A customer exits the Apple Inc. store on Nanjing East Road in Shanghai, China, on Wednesday, Oct. 2, 2024. Photographer: Qilai Shen/Bloomberg There are some very early signs of recovery. As soon as cities relaxed homebuying rules, people quickly flocked to showrooms — even in the middle of the night. Travel booking data shows more Chinese are headed to Europe and Asian destinations like Japan and Malaysia compared to last year and even before the Covid-19 pandemic. Domestic travel is also booming, with the national rail network seeing a record number of passenger trips on the first day of the holiday. State media are hyping up the holiday spending data. Almost daily, headlines with words like "record" or "exceed" would pop up on news apps from China Central Television and Xinhua News Agency, highlighting figures such as nationwide cinema ticket sales, railway traffic, and road trips. We won't have a complete view of China's holiday spending until next week at least. For the current optimism to last, Beijing will need to follow through on the stimulus measures it has announced — and possibly even more. Billionaire investor Ray Dalio said policymakers must do "whatever it takes" to bring about a turnaround. That would likely require major fiscal firepower — something that could push stimulus into "bazooka" territory, if unleashed. The elite 24-man Politburo has urged officials to issue and better utilize ultra-long special sovereign bonds and local special notes to drive investment without giving specifics, fueling speculation on the strength of the fiscal measures. Jia Kang, a former head of a research institute affiliated with the Ministry of Finance, said the country has room to ramp up fiscal support for the economy by issuing as much as 10 trillion yuan ($1.4 trillion) in special debt. That would be many times the 1 trillion yuan in ultra-long special sovereign bonds the government planned to sell this year. But he said that would be a proportional increase from the 4 trillion yuan stimulus package in 2008, given China's gross domestic product had quadrupled in nominal terms by the end of 2023. As a historic rally in Hong Kong-listed Chinese stocks paused on Thursday, with traders taking a moment to reflect after a more than 30% surge since early September, it remains to be seen whether the dip is just a brief setback. Much is at stake this Golden Week. If the conditions leading into the holiday were so favorable and yet failed to boost consumer spending, it would raise the question what could? What We're Reading, Listening to and Watching: - Explainer on what's wrong with China's economy and what Xi's doing
- China's sudden stock rally sucks money from rest of Asia
- China's fast-growing copper champion is reshaping global supply
- Daniel Moss writes that stimulus is good, but China faces a hard slog
- Podcast on Tim Walz's ties with China and the impact on US elections
- Shuli Ren's column on Xi finally realizing what's ailing China
China is determined to become self-sufficient in key areas like electric vehicle semiconductors and advanced hardware, even if it means sacrificing access to the best chips to support its local companies. Beijing is encouraging Chinese tech companies to buy more locally produced AI chips instead of those from Nvidia, which are considered the best for training algorithms. This move aims to strengthen domestic alternatives like Huawei and Cambricon Technologies, Bloomberg News reported. The Nvidia headquarters in Santa Clara, California, US. Photographer: Loren Elliott/Bloomberg The policy serves as guidance rather than an outright ban as Beijing seeks to avoid escalating tensions with the US and hurting its own AI tech development. Broadly, the move aligns with China's efforts to quickly boost domestic chip production and reduce reliance on foreign technology, especially amid a growing US-led campaign to restrict its access to the most sophisticated semiconductors and equipment. Goldman Sachs analysts estimate that the value of semiconductor production by Chinese companies will reach 40% of the country's chip demand by 2030, up from 16% in 2022, though most of the capacity expansion will be focused on mature nodes due to technology constraints. Huawei's release of Mate 60 Pro 5G handset last year was a major breakthrough in China's self-sufficiency drive. The phone's development, featuring an advanced locally-made processor with help from Shanghai-based Semiconductor Manufacturing International Corp., demonstrated that Chinese companies can continue to innovate despite growing restrictions. Additionally, 50% of the critical components in the Mate 60 Pro handset came from Chinese suppliers, an increase from less than 40% for the Mate 30 Pro in 2019, according to research firm Yole Group. Earlier this year, Chinese officials told local EV makers to sharply increase their purchases from domestic auto chipmakers. This has implications for other countries: the European Union has warned that its chipmakers, including NXP Semiconductors NV, may lose market share in China. And the Biden administration is so concerned about potential oversupply from China's chip capacity expansion that it has slapped 50% tariffs on Chinese semiconductor imports. However, this pushback will only strengthen China's resolve to keep replacing foreign technology imports. Xi emphasized this at a national science conference in June, saying some core technologies are still controlled by others and that China faces a shortage of top scientific and technological talent. "We need to ramp up our innovation and claim the high ground in technological competition and future development,'' the Chinese leader said. |
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