Caixin Insight: A Lot of Chipmakers Have No Idea What They’re Doing
NDRC tells incompetent chipmakers to stay in their lane
National Development and Reform Commission (NDRC) spokesperson Meng Wei laid into “three no” chipmaking wannabes in a Monday press conference, saying that companies with no experience, no technology, and no talent should stop blindly rushing into the industry.
There have been repeated examples of low-quality work on projects that require great technological sophistication, she added, noting that “stalled projects and vacant manufacturing plants have wasted huge amounts of resources.”
The NDRC, China’s economic planning agency, plans to change that. Meng said it will:
- hold the heads of such projects accountable
- encourage companies and the financial institutions that invest in them to take greater responsibility
- strengthen supervision and guidance on essential integrated circuit projects
- work with other ministries to improve industrial planning as well as the industry’s geographic layout, concentrating major companies in designated regions
- set up a system to prevent these issues from recurring, with an early warning mechanism
For some more detail on the many setbacks China has encountered in its drive for self-sufficiency in the semiconductors that power everything from smartphones to self-driving cars, see the full story.
GDP data digest
China’s economy continued its recovery from the Covid-19 pandemic in the third quarter, with GDP growth of 4.9%, accelerating from 3.2% growth in the previous quarter. The strength of China’s GDP growth in Q3 was mainly driven by strong services recovery on the supply side, as well as a more limited recovery in consumption, although with much room for improvement on the demand side.
“China’s quick recovery was a product of its stringent lockdowns, massive testing, population tracking, a large economy that can afford to be somewhat insulated, and fiscal stimulus via credit expansion,” economists at Nomura International (Hong Kong) Ltd. wrote in a note.
However, third-quarter economic growth was slower than the median estimate of 5.4% growth (link in Chinese) in a Caixin survey of economists. The Nomura economists said that was partly because high volatility made forecasting difficult. Macquarie Capital Ltd. economists also said in a note that they were not concerned as forecasting is more like “guesswork” in the year of Covid-19.
On the supply side, services had the fastest quarterly growth in Q3, 4.4% year-on-year after 1.9% in Q2, thanks to the successful containment of Covid-19. Manufacturing and construction rose by a more modest 1.3 percentage points from Q2, and agriculture grew 0.6 percentage points from Q2.
Final consumption expenditure contributed 1.7 percentage points to third-quarter GDP growth, in contrast to dragging growth down by 2.3 percentage points the previous quarter, National Bureau of Statistics Spokesperson Liu Aihua told a Monday briefing (link in Chinese). Total retail sales of consumer goods in Q3 grew 0.9% year-on-year, up from -3.9% in Q2, helping turn consumption from a drag on the economy into a driver.
But consumption remained a weak point compared with investment and exports. “With policy normalization, the recovery ahead will largely depend on the consumption recovery,” Macquarie Capital Ltd. economists said.
China revamps commercial bank law
On Oct. 16, the PBOC issued a draft revision proposal for the Commercial Bank Law, marking the third overhaul of the law since its implementation in 1995, with the changes set to help strengthen corporate governance and improve risk disposal and market exit mechanisms. In general, the changes aim to bring commercial banks closer to their originally intended functions, mitigate financial risk, and encourage commercial banks to better serve the real economy.
The amended version of the law provides more detail concerning bankruptcy and repayment procedures, as well as expanding the government’s powers. It will allow the banking regulator to take over struggling lenders that can no longer operate normally and hurt depositors’ interests. This move comes following takeovers of a number of lower-tier banks since 2019, including Baoshang Bank, Bank of Jinzhou and Hengfeng Bank. As smaller banks’ asset quality erodes and they face heightened credit risks amid the economic downturn, the law will provides regulators with more tools to ensure the sector’s stability.
Another notable change is that “commercial banks may independently negotiate with customers to determine deposit and loan interest rates,” a long-awaited reform that marketizes rates and may help increase competition in the sector, although is not necessarily likely to have a major immediate impact on loan pricing. It also clarifies that commercial banks will not be subject to the recent Supreme People’s Court ruling setting a cap on interest rates at four times the one-year national loan prime rate.
Chengdu-Chongqing ‘economic circle’
Last Friday, the Politburo reviewed the outline of a plan (link in Chinese) to make Chengdu and Chongqing the next “economic circle,” along the lines of other major economic hubs like Beijing-Tianjin-Hebei. The plan is being touted as a driver for the internal half of the “dual circulation” strategy, along with other benefits like stabilizing supply chains and supporting the Belt and Road.
For now, we don’t have all that many details about the plan, but it is a major policy and previous such “economic circles” now command a great deal of attention in the economic policymaking process. The Chengdu-Chongqing area may receive a wide range of preferential policies with significant impacts, so it’s worth keeping an eye out for further updates.
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