China’s “Golden Shares,” Semiconductor Roadblocks, Population Decline, U.S. & China Trade
China’s “Golden Shares,” Semiconductor Roadblocks, Population Decline, U.S. & China Trade
News Brief (1/18)
The article of the week is on Apple’s China supply chain concerns. The Financial Times did a deep dive into Apple’s integration with China and detailed the reasons why Apple will have an exceedingly hard time extricating themselves from the region.
How Apple tied its fortunes to China - FT $$
These operations played such a salient role that the unassuming character behind them, chief operating officer Tim Cook, would succeed Steve Jobs as CEO in 2011. It was Cook who shifted Apple’s production from the US to China, where he established unparalleled efficiencies that underpinned Apple’s ascent.
But this extraordinary success story has also created Apple’s biggest vulnerability: its dependence on a single country, China, which under President Xi Jinping has grown increasingly authoritarian and estranged from the west.
If you enjoy the news brief, please share with others to keep them informed.
China’s “Golden Shares”
VERMILION: Entities owned by the Cybersecurity Administration of China (CAC), a Chinese Communist Party (CCP) organ, have purchased stakes in two Alibaba subsidiaries and are set to do the same for Tencent. These acquisitions indicate that the CCP feels the need to take more decision-making control over private Chinese corporations very likely in order to steer these companies towards national level policy goals. Vermilion will release an in-depth article on the CAC in the coming weeks.
China acquires 'golden shares' in two Alibaba units - Reuters
BEIJING, China, Jan 13 (Reuters) - China has acquired minority stakes with special rights in two domestic units of tech giant Alibaba Group Holding Ltd (9988.HK), business registration records showed, as Beijing extends a campaign to strengthen control over online content.
Beijing has been taking 'golden shares' in private online media and content companies for more than five years, and in recent years expanding such arrangements to companies with vast troves of data.
The stakes taken over the last four months in the Alibaba units are the first ones to come to light for the e-commerce firm. Alibaba has been one of the most prominent targets of China's two-year-long regulatory crackdown on tech giants.
These golden shares, typically equal to about 1% of a firm, are bought by government-backed funds or companies which gain board representation and/or veto rights for key business decisions.
China's Government to Take Golden Shares in Alibaba, Tencent - Bloomberg
An arm of the Cyberspace Administration of China took 1% of an Alibaba digital media subsidiary in Guangzhou on Jan. 4, according to corporate database Qichacha. The company’s media portfolio includes businesses such as streaming platform Youku and mobile browser UC Web. A new director who shares the name of a CAC official was appointed that same day, records showed, confirming a Financial Times report.
The fund vehicle that bought into Alibaba is backed by the CAC along with prominent state firms such as CITIC, China Post and China Mobile Ltd., the database showed. Discussions are also underway about a government entity taking a similar stake in a Tencent subsidiary in mainland China, a person familiar with the matter said. The Financial Times reported the consideration earlier.
China moves to take ‘golden shares’ in Alibaba and Tencent units - FT $$
The specifics of the government’s plan to take golden shares in Tencent remain under discussion, but will involve a stake in one of the group’s main China operating subsidiaries, three separate people briefed on the matter at Tencent said.
“The state is not going away, this is the trend for the future,” said one of the people.
Another person close to Tencent said the group was pushing for a government entity from its home base of Shenzhen to take the shares, instead of bringing in the Beijing-based state investment fund that took the stakes in the units of Alibaba, ByteDance and Weibo, China’s version of Twitter.
Chinese officials have used a variety of state groups to take the holdings. Executives at Nasdaq-listed streaming service Bilibili are pushing for a state entity in Shanghai to take shares in one of its subsidiaries, two people briefed on the matter said. When the government took a 1 per cent stake in short-video maker Kuaishou’s key onshore company last year, it turned to state-owned Beijing Radio and Television Station.
Documents seen by the Financial Times detail how the golden share arrangement works at ByteDance. They show how the government tightened its grip over the TikTok parent’s main Chinese entity in April 2021. A CAC-connected fund joined two other state groups to pay Rmb2mn for a 1 per cent stake in the unit, called Beijing ByteDance Technology.
VERMILION: Good luck to BiliBili and Tencent in their attempts to skirt the CAC and have local government entities invest in their subsidiaries versus central government ones. It is clear that companies fear the CAC.
Semiconductor Roadblocks
VERMILION: China’s “Big Fund,” a $100 billion plan for semiconductor subsidies, was a big bust and the CCP is scrambling for ways to develop a domestic semiconductor industry. These issues combined with continued theft of trade secrets will likely weigh on a pending Dutch decision to comply with U.S. chip bans.
If government funds are reduced to a hotbed of corruption, Beijing’s hope of breaking free of US chip sanctions will crumble.
Beijing must take a good, hard look at its institutional flaws at every stage of industrial policy implementation, from qualification verification and project approval to financial transparency – and make timely adjustments.
Otherwise, these are serious problems that could stand in the way of China’s efficient use of talent and capital in its semiconductor self-sufficiency drive, and could risk ruining the virtuous industrial ecosystem.
VERMILION: Corruption is still a serious problem in China and it is one of the many issues standing in the way of semiconductor autonomy.
5 People Indicted for Leaking Semiconductor Technology to China - Business Korea
The prosecution has indicted five people for leaking the world's first supercritical semiconductor cleaning equipment core technology developed by SEMES, a key subsidiary of Samsung Electronics, to China.
The Suwon District Prosecutor’s Office announced on Jan. 16 that it has indicted five people, including former SEMES researchers and a technology leak broker, for violating the Industrial Technology Protection Act and the Unfair Competition Prevention Act (a leak of trade secrets). Among the five, four were arrested and one was incited without detention.
Biden and Dutch PM discuss semiconductor dispute, Patriots for Ukraine - Reuters
Trade Minister Liesje Schreinemacher said on Sunday the Netherlands would not summarily accept demands by the United States on chip technology.
Jean-Pierre did not have details of the conversation between Biden and Rutte on chips but said: "We don't push any of our allies or our partners, we consult with each one of them closely and they make their own decisions."
A White House statement on the talks said Biden and Rutte "discussed the importance of secure supply chains and critical technologies to our national security and economic prosperity."
VERMILION: ASML, a Dutch company, is one of the most important semiconductor suppliers in the world.
Population Decline
VERMILION: Population decline is all over the news acting as fuel for the “China demographic downfall” camp. While this is important data, it doesn’t mean much for the decade's strategic outlook. China has plenty of people for their military and workforce in the short term. The long-term question is what methods will the CCP employ to engineer their way out of this problem?
China's first population drop in six decades sounds alarm on demographic crisis - Reuters
BEIJING/HONG KONG, Jan 17 (Reuters) - China's population fell last year for the first time in six decades, a historic turn that is expected to mark the start of a long period of decline in its citizen numbers with profound implications for its economy and the world.
The country's National Bureau of Statistics reported a drop of roughly 850,000 people for a population of 1.41175 billion in 2022, marking the first decline since 1961, the last year of China's Great Famine.
That possibly makes India the world's most populous nation. U.N. experts predicted last year India would have a population of 1.412 billion in 2022 though they did not expect the South Asian nation to overtake China until this year.
U.S. & China Trade
VERMILION: US-China trade is up in 2022, but the US is trading relatively less with China compared to the surging share of trade with the rest of Asia. The US is also looking to sign a trade agreement with Taiwan. At the same time, China’s trade with Russia is breaking records and Iran’s oil exports to China have also reached record highs. Global economic bifurcation continues.
China’s customs data shows that exports to the US plunged by 25 per cent in November from a year earlier after tallying a year-on-year decline of 13 per cent in October.
And the number of US-bound shipments from China fell 21 per cent between August and November, according to Project44, a supply-chain logistics company.
In contrast, shipments from members of the Association of Southeast Asian Nations (Asean) rose 23 per cent and 22 per cent in September and October, respectively, according to the Japan Maritime Centre.
Takuma Matsuda, visiting researcher at the Japan Maritime Centre and professor at the Graduate School of Commerce at Tokyo’s Takushoku University, said that while China’s container export declined 4.7 per cent on a cumulative basis for January-November, those of Vietnam and India increased by 13.3 per cent and 14.9 per cent, respectively.
China's 2022 trade with Russia hit record $190 bln - customs - Reuters
BEIJING, Jan 13 (Reuters) - China's trade with Russia hit a record 1.28 trillion yuan ($190 billion) last year, the government said on Friday, even as Russia's imports from the European Union fell on sanctions related to Moscow's invasion of Ukraine.
China's 2022 exports to and imports from Russia accounted for 3% of China's total trade, Lyu Daliang, spokesperson of the General Administration of Customs, told a news briefing.
Shipments of Chinese goods to Russia have grown for six months in a row.
Russia more than doubled its rail exports of liquefied petroleum gas to China in 2022 as part of the Kremlin's drive to diversify its energy export sales, a Reuters analysis based on data from industry sources showed on Thursday.
China's imports of Russian natural gas through the Power of Siberia pipeline are set to have risen by at least 50% in 2022, according to Russia's top producer, Gazprom. China's Russian crude oil imports expanded 10% on year in the first 11 months at nearly 80 million tonnes.