5/30/2024

No China means no business, no goods, no profits

 We are starting to see China flexing its economic muscle in preparation for full decoupling from the USA and the West. The intention though not explicitly spelt out is discreetly loud and clear.

USA companies in China are now facing serious challenges doing business inside China. They are cutting prices of their products in the Chinese market. Tesla, Apple and Nvidia are among those slashing prices of their products in China. The Chinese market is their most important export destination and demand center.

With China pivoting its move towards enhancing domestic demand, Chinese products are going to dominate the market inside China itself. EVs, smartphones and chips made by Huawei and Semiconductor Manufacturing International Corporation (SMIC) are going to take over a greater share of China's domestic market and USA and Western companies are fighting for survival in China. China does not need to resort to underhand tactics to keep them out or banning them. The market will see to it.

The USA and Western propaganda that China is using its industrial overcapacity to overwhelm global market is going to come back to haunt them. The USA is coercing China to expand domestic demand to absorb all the overcapacity and is going to have its wish granted. If China manages to convince its citizens to buy local and expand its domestic demand for products made in China, less of such Chinese products will be exported and that is not good for the USA and the West. The USA and the West asked for it, they will get what they wanted. This is also in line with the decoupling move that the USA and the West is working very hard to achieve, and China is giving them a helping hand.

Those of the countries in the Global South are going to benefit as decoupling with the USA and the West reaches its pinnacle. Chinese goods will flood the Global South, a blessing in disguise for them. The Global South have little capacity for making EVs, smartphones or chips. They have little interest in curbing China's overcapacity and instead should be supporting it. They do not have to fight the battles like the USA and the West to help their struggling companies doing business with and competing with China. 

Anonymous

1 comment:

  1. ASML still depends on China for almost 50% of its lithography machine sales in the last quarter and it is beginning to realize its frailty and attempting to extricate itself from the Dutch Government's control, basically catering to the interest of the USA. ASML is not totally following the dictates of the Dutch Government, that in turn, has to toe the line of the USA Government in its attempts to stifle China in semiconductor manufacturing.

    The Dutch Government has to see more clearly that following the USA blindfolded will do the same harm to the Netherlands as what the whole EU is going through with sanctioning Russia over energy. It is not the USA that will be paying the price. It is the Dutch company ASML killing its own business, and it is the USA creating misery for others while reaping all the benefits.

    Similarly, Japanese companies doing the same business as ASML are telling the Japanese Government that their survival is at stake if there are further restrictions imposed upon them under pressure by the USA Government over doing business with China.

    ASML could see that China's semiconductor innovation and the rollout speed of its own lithography machines cannot be ignored. These lithography machines may still be behind those of ASML's, suitable for just mature chip making, and no match for ASML's high-end chip making machines. But the gap may close sooner than anticipated.

    ASML should be well advised and should not swallow the propaganda that there is still a gap of 3 to 5 years optimistically for China to catch up. It could realistically only be a matter of a year or even months for Huawei to do that. Remember the boast that even if ASML gives Huawei the blueprints for lithograph machines, Huawei would not be able to build them? ASML is now eating humble pie.

    The challenge, therefore, to ASML and Japanese chipmakers of semiconductor machines is not without basis or the need for them to worry about. Their monopolistic days are over.

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