China’s CPI recorded positive growth for the seventh consecutive month, rising by 0.6% year-on-year in August, up from 0.5% in the previous month, as reported by the National Bureau of Statistics on September 9. However, the CPI is still below market expectations of 0.7%.

This rise was mainly driven by continuous increases in food prices driven by high temperatures and heavy rainfall, which surged by 2.8% (previously 0%), contributing 0.51 percentage points to the overall CPI growth.

However, non-food prices fell from 0.7% in July to 0.4%, and core CPI, which excludes food and energy, rose by only 0.3%, down from 0.4% in the prior month. August’s PPI reflected similar trends, with China’s PPI declining by 1.8% year-on-year, widening from a 0.8% drop in July. This marks the 23rd consecutive month of contraction, highlighting weak domestic demand and increasing deflationary risks.

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Recently, the 54th “Statistical Report on China’s Internet Development” was released. In the first half of the year, generative artificial intelligence (AI) continued to be a global technology hotspot, and China’s AI industry has gradually entered a period of fast development. “AI+” continues to empower industrial upgrading, contributing to the acceleration of new productivity development and the deep advancement of new industrialization.

Data shows that the market size of China’s core AI industry has approached CNY 600 billion, with more than 4,500 AI companies, and the computing power ranks second globally.

On September 8, Vice Minister and Deputy China International Trade Representative Ling Ji explained that Chinese AI companies account for about 1/7 of the global total.

Meanwhile, AI products have gained significant recognition and use among China’s vast internet user base. The report surveyed the usage of generative AI products, showing that by June 2024, the penetration rate of AI, particularly large models, reached 16.4%.

Moreover, the “National Artificial Intelligence Industry Comprehensive Standardization System Construction Guide (2024 Edition)” , jointly issued by the Ministry of Industry and Information Technology, the Office of the Central Cyberspace Affairs Commission, the National Development and Reform Commission, and the State Administration for Market Regulation, was officially released.

The guide is regarded as a key document for the formation of China’s standard system to drive the development of the AI industry.

The guide points out that by 2026, the level of integration between standards and technological innovation in the industry will continue to improve, with more than 50 new national and industry standards being developed, accelerating the formation of a standard system that promotes the high-quality development of the AI industry.

More than 1,000 companies will participate in the promotion and implementation of these standards, with the effect of standards on corporate innovation becoming more prominent. China will also participate in the development of more than 20 international standards, promoting the globalization of the AI industry.

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• [News] Nanjing, China Achieved Breakthrough in Manufacturing Key SiC Chip for the First Time
• [News] US Reportedly Weighs Stricter Limits on AI Memory Access for China

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Apple is set to unveil the highly anticipated iPhone 16 on September 9, with many expecting that the AI platform “Apple Intelligence” will spark a supercycle in iPhone 16 sales. However, Bloomberg suggests that the slow rollout of Apple Intelligence may make such a supercycle unlikely.

The report notes that while Apple Intelligence will be a major highlight of the iPhone 16 launch, a more refined version might not be available for some time. The initial release is expected to lack several features, including ChatGPT. Additionally, Apple Intelligence will not be launched in the EU (including Italy, France, Spain, Sweden, Germany) or China.

Even if Apple successfully convinces consumers to adopt its AI platform, reportedly, Apple Intelligence will not be available with the iPhone 16 at launch. It is expected to roll out with the iOS 18.1 update in October.

Furthermore, ChatGPT integration is scheduled for later this year, and significant new features for Siri will not be available until next year, as Apple has also decided to delay the release of its latest image generation features to the iOS 18.2 update in December, rather than in iOS 18.1.

With many features expected to be introduced gradually, the AI platform may not be sufficient to drive a large-scale upgrade cycle this year. For these reasons, the report believes that the iPhone 17, slated for next fall, is more likely to generate a supercycle.

According to Apple’s official website, Apple Intelligence will only support devices with the built-in M1 or newer processors (such as iPad Air, iPad Pro, and Mac), as well as the 2023 iPhone 15 Pro Max and iPhone 15 Pro, but not the entry-level iPhone 15.

For the first quarter this year, TrendForce reported that Apple faced a decline in sales in the Chinese market, resulting in a drop in annual production to 47.9 million units.

This decline prompted several adjustments within the component supply chain, although production plans for processor chips remained unchanged. TrendForce posits that the second quarter falls within a product iteration gap for Apple, and production is expected to decrease by approximately 10%.

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• [News] Reducing Reliance on China, Apple to Produce High-End iPhones in India for the First Time
• [News] Fuelled by AI Features, Apple’s iPhone 16 Shipments Reportedly to Increase by 10%

(Photo credit: Apple)

Despite U.S. export controls aimed at preventing Chinese companies from acquiring advanced AI chips, small cloud service providers in China have reportedly found ways to obtain NVIDIA’s A100 and H100 chips. The cost of renting cloud services in China is even lower than in the U.S.

According to a report from the Financial Times, four small-scale Chinese cloud providers are offering servers equipped with eight A100 chips each, charging around USD 6 per hour. In comparison, similar services from U.S. cloud providers cost approximately USD 10 per hour.

As Chinese companies are reportedly bypassing U.S. export controls, industry sources cited by the Financial Times have further noted that the lower prices in China may hint at a robust local supply of NVIDIA chips.

Since the fall of 2022, the U.S. has banned NVIDIA from supplying A100 chips to China, and the more powerful H100 chips have not been approved for sale there.

However, industry sources and startups have revealed that these chips are still available in China. Ads for A100 and H100 have appeared on social media platforms like Xiaohongshu and e-commerce sites such as Taobao, with prices higher than those abroad.

At the Huaqiangbei electronics market in Shenzhen, reportedly, industry sources have revealed that the price of NVIDIA’s H100 is quoted at USD 23,000 to USD 30,000, while Chinese online sellers list it at USD 31,000 to USD 33,000.

Meanwhile, larger Chinese cloud providers such as Alibaba and ByteDance emphasize service stability and security in the local market. For servers equipped with A100 chips, they charge two to four times more than smaller cloud providers.

According to another source cited by Financial Times, large companies must consider regulatory compliance, which puts them at a disadvantage because they are reluctant to use smuggled chips. In contrast, smaller providers are less concerned.

The same report also indicate that after the US government tightened export controls in October last year, servers from Supermicro equipped with eight H100 chips were priced as high as approximately CNY 3.2 million. However, as supply constraints eased, the price has dropped to around CNY 2.5 million.

Several sources cited by the report claim that merchants from Malaysia, Japan, and Indonesia frequently ship Supermicro servers or NVIDIA chips to Hong Kong, from where they are then transported to Shenzhen.

In response to these issues, NVIDIA reportedly stated that it primarily sells chips to well-known partners, ensuring that all sales comply with U.S. export regulations.

NVIDIA also mentioned that its used products can be obtained through various channels and, although they cannot track products after sale, they will take appropriate action if they determine a customer is violating U.S. export controls.

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• [News] China’s 1H24 Chip Equipment Purchases Exceed Taiwan, Korea, and US Combined, Reaching USD 25 Billion
• [News] China Contributes Over 40% of U.S. Chip Equipment Makers’ Revenue despite Export Controls

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Last week, a series of U.S. employment data fueled concerns about a potential economic recession, causing the S&P 500 to drop 4.2%, marking its worst weekly performance since January 2022. U.S. 2-year and 10-year Treasury yields fell, reflecting market expectations of a more aggressive rate cut path for the rest of the year, with the 10-year/2-year Treasury yield spread turning positive. The U.S. dollar index also declined as expectations for more significant Federal Reserve rate cuts rose. Below is a recap of key economic data from last week:

• United States ISM PMI: The U.S. Manufacturing PMI for August came in at 47.2 (previous 46.8), remaining in contraction territory for the fifth consecutive month. This continued to reflect the restrictive monetary policy and uncertainties around the U.S. election, dampening corporate investment sentiment. Meanwhile, the U.S. Services PMI for August was 51.5 (previous 51.4), marking two consecutive months of expansion, with all sub-indices in expansionary territory.

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• United States Employment Report: The U.S. unemployment rate for August was 4.2% (previous 4.3%), in line with market expectations. Nonfarm payrolls increased by 142,000 (previous 89,000), falling short of market expectations of 164,000. Additionally, nonfarm payrolls for June and July were revised downward, signaling further cooling in the U.S. labor market.

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• Canada Monetary Policy: On September 4, the Bank of Canada (BoC) announced a 25 basis point rate cut, marking the third consecutive rate cut since June. Although inflation has returned to the target range, the BoC has begun to express concerns about the risk of deflation due to economic weakness. As a result, markets now expect that if the Canadian economy continues to deteriorate, the BoC may adopt a more aggressive rate-cutting approach.

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Key Data to Watch This Week

• China CPI (September 9): China’s July CPI rose 0.5% year-on-year (previous 0.2%), driven primarily by food prices due to extreme weather. Excluding food and energy, core CPI was 0.4% (previous 0.6%). The market expects August CPI to rise to 0.7%, supported by seasonal demand during the summer and government policies promoting service consumption.

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• United States CPI (September 11): U.S. CPI for July increased 2.9% year-on-year (previous 3.0%), while core CPI, excluding food and energy, rose 3.2% (previous 3.3%), both in line with market expectations and marking the lowest growth since April 2021. According to the Cleveland Fed’s CPI forecast, August CPI is expected to fall to 2.56%, with core CPI projected to ease to 3.21%.

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• Eurozone Monetary Policy (September 12): The ECB left rates unchanged during its July meeting, mainly due to rising wages, which kept services inflation elevated. However, recent data now supports a rate cut, with August’s harmonised index of consumer prices (HICP) falling to 2.2% year-on-year (previous 2.6%). Additionally, adjusted wage growth, which has been a key driver of inflation, dropped to 3.5% in the second quarter (previous 4.7%). As a result, markets widely expect the ECB to cut rates again in September.

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