The U.S. has tightened restrictions on foundries supplying 7nm and below chips to Chinese clients. According to a report from Economic Daily News, following TSMC’s suspension of services to restricted Chinese clients, rumors suggest that South Korea’s Samsung is also affected by U.S. restrictions, preventing it from offering such foundry services to Chinese firms.

Samsung’s foundry division has reportedly notified Chinese clients about the restrictions, according to the report. However, Samsung has declined to comment on these rumors.

As for Intel, since it is closely aligned with the U.S., the company is also expected to comply with U.S. regulations, as the report mentioned. This would lead to a comprehensive blockade of China’s effort to develop advanced AI chips, signaling a new chapter in the U.S.-China semiconductor confrontation, potentially reshaping the global semiconductor landscape.

The report pointed out that currently, only three companies—TSMC, Samsung, and Intel—are capable of providing foundry services below the 7nm process. China’s leading foundry, SMIC, claims to have 7nm production capability, but it lacks the necessary economies of scale and efficiency.

Citing industry sources, the report suggests that Alibaba’s AI chip subsidiary, T-Head, could be the most heavily impacted by the restrictions, indicating that, following Huawei, Alibaba has now also come under scrutiny by the White House. Along with T-head, other Chinese AI chip companies, such as Bitmain and Cambricon, are also likely to be impacted.

Fully owned by Alibaba, T-Head has made rapid progress in next-generation chip development, with its “Yitian” series reaching sub-5nm technology, as the report mentioned. The company claims that its technology supports applications across diverse fields, including AI in automotive, gaming, and scientific research.

The report indicated that as China’s path to self-developed AI chips encounters setbacks, it may be forced to rely on downgraded versions of AI chips from U.S. companies like NVIDIA and AMD to comply with American restrictions. This development, as the report noted, could undermine Beijing’s hopes of using domestically developed AI chips to circumvent U.S. limitations.

(Photo credit: Samsung)

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China has yet to shake off the short-term risk of deflation, according to data released by the National Bureau of Statistics on November 9.

China’s Consumer Price Index (CPI) rose by 0.3% year-on-year in October , marking a 0.1 percentage point decline from the previous month. On a month-on-month basis, CPI decreased by 0.3%, reflecting a similar 0.3 percentage point drop.

Breaking down the components, food prices—a key driver of CPI growth—slowed to a 2.9% year-on-year increase, representing a 0.4 percentage point deceleration. Non-food prices, however, recorded a deeper year-on-year decline of 0.3%, mainly due to falling international crude oil prices. Service-related prices edged up by 0.2 percentage points to a 0.4% annual growth rate, driven by a temporary boost in travel costs during the National Day holiday, but still registered a 0.4% year-on-year decline. Excluding food and energy, core CPI rose by just 0.2%, a modest increase of 0.1 percentage points from the previous period.

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On the Producer Price Index (PPI) side, China’s PPI contracted by 2.9% year-on-year in October, with a marginal decline of 0.1 percentage points from the previous month. The month-on-month figure showed a decline of 0.1%, albeit an improvement of 0.5 percentage points.

The breakdown indicates that producer prices for means of production remained down 3.3% year-on-year, though month-on-month growth of 0.1% suggests short-term support from recent stimulus measures targeting construction-related industries. Conversely, prices for consumer goods saw a broader decline, with a year-on-year decrease widening by 0.3 percentage points to 1.6%. Among durable goods, the decline in automobile factory prices expanded to 3.1%, while prices for computers, communications, and electronic products contracted by 2.9%.

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Overall, the impact of China’s September monetary easing policies appears limited, as consumer confidence remains weak and spending sluggish. This continued weakness has forced businesses to further lower prices, compressing margins and sustaining deflationary pressures in the economy.

The Chinese Government Passes a 10 Trillion Yuan Fiscal Policy

A day before the data release, China’s National People’s Congress Standing Committee approved a fiscal package totaling approximately 10 trillion yuan. This package aims to raise the annual ceiling for special local government bonds by 2 trillion yuan over the next three years to replace implicit local government debts. Additionally, 800 billion yuan per year over the next five years will be allocated to addressing these hidden debts through special bond issuance.

However, these measures primarily address debts accumulated through Local Government Financing Vehicles (LGFVs), which local governments have used to fund infrastructure projects and meet central GDP growth targets. By not appearing on local government balance sheets, these debts have enabled governments to bypass borrowing limits, leading to a massive buildup of hidden liabilities.

Banks often repackage LGFV bonds as high-yield wealth management products sold to domestic savers. Even though these savers know the low or non-existent economic returns of many of these projects, they continue to invest, confident that the central government will ultimately guarantee repayment. This has led to broad participation in what could be described as a “Ponzi scheme” with little regard for moral hazard.

The results are evident: the persistent decline in China’s real estate market appears to be leading the country toward a balance sheet recession, with private consumption and investment weighed down by high private sector debt repayment pressures. Although the government is aware of the issue, its approach has been largely confined to “new debt to replace old debt,” preventing meaningful economic recovery and efficient capital allocation.

According to Liberty Times, citing Chinese meida outlet TMTPost, as the U.S. has imposed sanctions on China’s semiconductor industry since 2019, over 22,000 Chinese chip companies have shut down as of the end of 2023.

The report pointed out that a large number of Chinese chip companies have gone out of business, mainly because many small and medium-sized companies lack the necessary core technologies and face difficulties overcoming technical barriers

Another issue is the lack of investment, particularly for smaller chip companies, as the report indicated. The U.S. restricts investment in China’s semiconductor industry, and under U.S. sanctions, European investors are also hesitant to invest in Chinese chip companies.

The report mentioned that while large companies have invested billions of dollars to secure alternative suppliers, and Huawei is said to have established a network of foundries to sustain its business, smaller chip companies lack the resources to keep up without government financial support.

On the other hand, China recorded a trade deficit in chips totaling USD 122 billion in the first seven months of 2024, highlighting its continued reliance on imported high-end chips, as the report noted.

According to the report, citing data from China’s General Administration of Customs, in the first seven months of this year, China imported 308.1 billion chips with a total value of approximately USD 212 billion, marking year-on-year increases of 14.5% in quantity and 11.5% in value compared to the same period in 2023, which suggests that Chinese companies were actively stockpiling high-end chips, such as high-bandwidth memory (HBM), ahead of U.S. export restrictions on these products.

Meanwhile, in the first seven months of this year, China exported 166.6 billion chips, mainly traditional chips used in automobiles, home appliances, and various consumer electronics, totaling USD 90 billion, with year-on-year increases of 10.3% in quantity and 22.5% in value, as the report pointed out.

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With the end of the U.S. presidential election last week, diminishing uncertainty boosted equity markets, leading to a strong 4.66% rally in the S&P 500 Index, reaching 5,995.5 points.

In the bond market, the victory of Donald Trump and robust economic data drove the 10-year U.S. Treasury yield to approximately 4.5%, before retreating to around 4.3% following a shift in the Federal Reserve’s stance. Meanwhile, the U.S. dollar index edged closer to the 105 threshold.

Key Economic Data Review for Last Week:

U.S. Presidential Election: Presidential candidate Donald Trump secured seven pivotal swing states, claiming victory with 312 electoral votes over Harris and becoming the 47th President of the United States. The Senate has been confirmed as controlled by the Republican Party, and the House currently shows a Republican lead of 213 seats versus the Democrats’ 203 seats. Should the Republicans maintain their lead, the U.S. will enter a period of unified Republican governance under Trump’s administration.

China’s National People’s Congress Standing Committee: The committee announced an increase in local government special bond issuance limits by RMB 6 trillion (approximately USD 837 billion) to restructure hidden local debts. Additionally, over the next five years, beginning in 2024, RMB 800 billion per year from new local special bond allocations will be earmarked for debt reduction, with an anticipated total restructuring of RMB 4 trillion in hidden debt.

U.S. Monetary Policy Decision: The Fed cut rates by 25 basis points at its November meeting, shifting its policy stance from the markedly dovish position of September to a more neutral outlook. This change reflects stronger-than-expected resilience in recent U.S. economic data. Following the meeting, market expectations for rate cuts next year were adjusted, with the Fed now anticipated to cut rates 25 basis points in December 2024, and 75 basis points in the first half of 2025, before pausing further reductions (previously expected to cut four times in 2025).

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Key Economic Data for This Week:

U.S. CPI (11/13): The impact of October’s hurricanes may have pushed many to seek temporary accommodation, driving up service prices. Additionally, hurricane damage to automobiles may lead to further increases in auto parts prices. According to forecasts from the Cleveland Fed, October’s CPI annual growth rate is expected to rise to 2.56% (from 2.41% in September), with core CPI projected to inch up to 3.34% (from 3.26%).

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U.S. Retail Sales (11/15): Entering the traditional holiday shopping season, the National Retail Federation anticipates that strong household financial health will continue to support consumer spending. Market expectations for retail sales growth remain robust, with a monthly increase projected at 0.3% (previously 0.4%) and an annual growth rate of 2.2% (previously 1.74%).

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China’s Monthly Economic Data (11/15): Against the backdrop of government initiatives such as old-for-new consumer goods campaigns and Singles’ Day promotions, the market anticipates that October’s retail sales growth will increase to 3.8% year-on-year (from 3.2%). With Trump’s election as President and the possibility of significant tariffs on Chinese imports, Chinese firms may accelerate production and exports, with industrial output growth expected to rise to 5.5% (from 5.4%). Meanwhile, fixed asset investment remains constrained by weaknesses in the real estate sector and local government finances, with projected cumulative annual growth holding steady at 3.5% (from 3.4%).

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According to MoneyDJ, citing Reuters, the U.S. government is actively working to curb the development of China’s semiconductor industry.

Republican Congressman John Moolenaar, chair of the House Select Committee on the Chinese Communist Party, along with senior Democratic Congressman Raja Krishnamoorthi, jointly sent letters to five semiconductor equipment manufacturers: ASML, Applied Materials, KLA, Lam Research, and Tokyo Electron. The lawmakers requested information on sales to China, arguing that China is using advanced semiconductor equipment to strengthen its military and is supplying chips to the Russian military, thereby threatening international order and security, as the Reuters report noted.

The report from MoneyDJ indicated that the U.S. government intends to expand the scope of export controls, including tightening the Foreign Direct Product Rule (FDPR) to prevent China from obtaining advanced equipment for military purposes, which would prohibit the export of semiconductor equipment containing U.S. technology to China.

However, this legislation has been delayed due to strong opposition from Japan and the Netherlands, as it would significantly impact the operations of semiconductor equipment manufacturers, as the report from MoneyDJ indicated.

On the other hand, as reported by the Financial Times, TSMC has informed Chinese companies that it will cease production of the most advanced AI chips at 7nm or below for Chinese customers starting on November 11. This decision is seen as a direct response to concerns about China’s access to cutting-edge technology. The report suggests that TSMC’s tightening and cessation of advanced chip supplies to Chinese clients could set back the AI ambition of major Chinese tech companies such as Alibaba and Baidu.

Read more

• [News] TSMC Reportedly to Halt 7nm and Below Chip Shipments to China’s AI Firms Next Week
• [News] China’s Chipmaking Equipment Spending Likely to Drop below USD 40 Billion in 2025 amid U.S. Tensions

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