Last week, Chinese equities continued to reflect the positive effects of easing policies, with the CSI 300 Index surging nearly 9%.In contrast, the U.S. S&P 500 Index saw a modest increase of only 0.22% due to uneven gains across sectors. In the bond market, the yield on the 10-year and 2-year Treasury note rose as expectations for rate cuts receded, narrowing the 10-year to 2-year yield spread to approximately 5 basis points. Meanwhile, the U.S. dollar index climbed to around the 102 level.

Key Economic Data Review for Last Week:

China PMI: China’s manufacturing PMI for September stood at 49.8 (previous: 49.5), marking the fifth consecutive month of contraction. Among the sub-indices, only the production index returned to expansion territory, while the other indices remained in contraction, indicating that China’s overall manufacturing sector continues to face challenges. Meanwhile, the non-manufacturing PMI came in at 50 (previous: 50.3), ending a two-month rebound. All major indices declined in September, reflecting weak consumer demand, which remained subdued even after a brief summer boost.

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U.S. ISM PMI: The U.S. manufacturing PMI for September was 47.2 (previous: 47.4), remaining in contraction for the sixth consecutive month. While the new orders index and production index improved slightly to 46.1 (previous: 44.6) and 49.8 (unchanged), they remained in contraction, reflecting restrictive financial conditions and uncertainty around the upcoming presidential election, which continued to dampen business investment. In contrast, the services PMI increased to 54.9 (previous: 51.5), reaching its highest level since February 2023. Key sub-indices, such as the business activity index and new orders index, rose to 59.9 (previous: 53.3) and 59.4 (previous: 53.0), respectively, marking the third consecutive month of expansion, with both indices showing gains of more than 6%, highlighting strong demand for U.S. services.

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U.S. Employment Situation: The U.S. unemployment rate for September fell to 4.1%,  better than the previous month and the market expectation of 4.2%. Nonfarm payrolls increased by 254,000 (previous: 159,000), significantly surpassing market expectations of 142,000. Employment growth in September was mainly driven by the leisure and hospitality sector, which added 78,000 jobs, and the education and healthcare sectors, which added 81,000 jobs. Additionally, initial jobless claims have shown a downward trend recently, indicating some improvement in the labor market slowdown.

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Key Economic Data Review for This Week:

U.S. CPI (October 10): The annual growth rate of the August CPI was 2.5% (previous: 2.9%), with a monthly growth rate of 0.2% (unchanged). Core CPI, excluding food and energy, remained stable at an annual growth rate of 3.2% (unchanged), with a monthly growth of 0.3% (previous: 0.2%). Both CPI and core CPI growth rates were the lowest since February 2021. According to the Cleveland Fed, September’s CPI is expected to decrease to 2.25% (August: 2.56%), and core CPI is projected to fall to 3.11% (August: 3.21%).

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FOMC Minutes from September Meeting (October 10): Recent data indicate that inflationary pressures have gradually eased, while the labor market shows no significant signs of deterioration. The focus of the minutes will be on the Federal Reserve’s outlook on the labor market and the economy following the recent 50-basis point rate cut.

University of Michigan Consumer Sentiment Index (October 11): The final reading of the University of Michigan’s consumer sentiment index for September was 70.1, up 2.2 points from August, marking a five-month high. The report highlighted growing consumer optimism about the future, with more consumers expecting a Harris victory in the upcoming election. Inflation expectations for one year ahead fell to 2.7% (previous: 2.8%), while the five-year inflation expectation edged up to 3.1% (previous: 3.0%). The market expects the consumer sentiment index to remain around the 70 level in October.

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The global AI wave is sweeping across the world, and China’s large-scale AI model companies are flourishing. Although Chinese AI enterprises started later compared to international giants like NVIDIA and Intel, they are making continuous breakthroughs as they grow. Companies like Infinigence AI and lisuantech have developed rapidly, while others such as VastaiTech, Birentech, Zhipuai, Moore Threads, and Enflame have secured investments from several state-backed funds.

China Internet Investment Fund Invests in Domestic GPU Maker VastaiTech

Recently, VastaiTech (Shanghai) Co., Ltd. underwent a corporate restructuring, with new shareholders including the China Internet Investment Fund (Limited Partnership), Guoshou (Shenzhen) Technology Innovation Private Equity Fund (Limited Partnership) under China Life, and Qingdao Yidun New Industry Investment Fund (Limited Partnership). At the same time, VastaiTech’s registered capital increased from approximately RMB 470 million to around RMB 520 million.

VastaiTech is a high-end GPU chip provider, offering full-stack chip solutions for core AI computing power, graphics rendering, content generation, and AI-generated content (AIGC).

Birentech Prepares for IPO, Backed by China Ping An and China Merchants Capital

On September 12, Shanghai-based Birentech released its “Initial Public Offering and Listing Counseling Report,” signaling its intention to go public. Birentech has completed its Series B funding round, raising over RMB 5 billion. Investors include Zhuhai Da Heng Qin Group, Gree Ventures, China Ping An, New World Group, Country Garden Ventures, Qiming Venture Partners, IDG Capital, among others.

Birentech’s focus is on general-purpose GPU (GPGPU) computing systems. The company launched the BR100 GPGPU chip, built on a 7nm process, and introduced a proprietary heterogeneous GPU co-training solution, which allows Chinese GPUs to coexist with NVIDIA GPUs.

State Capital Invests Again as ZhipuAI Completes New Round of Multi-Billion-Yuan Financing

In early September, ZhipuAI, a large AI model company founded only five years ago, announced the completion of a new financing round, raising several billion yuan. The lead investor is Zhongguancun Science City, a platform established by the Haidian District Government of Beijing.

ZhipuAI has completed 11 rounds of financing and is currently the highest-valued AI large-model unicorn in China. Its investors include well-known institutions such as Hillhouse Capital, Qiming Venture Partners, and Junlian Capital, alongside internet giants like Meituan, Alibaba, Tencent, and Xiaomi.

Enflame Initiates IPO Counseling, Backed by National IC Fund Phase II

On August 23, 2024, Shanghai-based Enflame signed an IPO counseling agreement with China International Capital Corporation, formally launching its A-share IPO process.

Enflame specializes in AI training and inference products. The company has developed the Suisi series of chips, Yunsui training and inference acceleration cards, and Yunsui intelligent computing systems, providing computing power support to internet companies, cloud service providers, network operators, research institutions, and local intelligent computing centers.

Infinigence AI Raises Nearly RMB 500 Million in Series A Funding

On September 2, Infinigence AI announced it had raised nearly RMB 500 million in its Series A funding round, marking the largest single financing record for a startup in China’s AI infrastructure sector. The round was co-led by the Social Security Fund’s Zhongguancun Innovation Fund, Qiming Venture Partners, and Hongtai Fund, with additional participation from Lenovo Ventures, Xiaomi, and other strategic investors.

According to public information, Infinigence AI, founded just 16 months ago, has raised nearly RMB 1 billion in total. Past investors include Sequoia China, Baidu, ZhipuAI, and Tongge Ventures.

Lisuantech Secures RMB 200 Million Investment from Dongxin Semiconductor

On August 19, Dongxin Semiconductor announced an external investment, stating it would use RMB 200 million of its own funds to increase its stake in Shanghai-based GPU company Lisuantech by subscribing to RMB 5 million in additional registered capital. After this capital injection, Dongxin Semiconductor will hold about 37.88% of Lisuantech’s equity.

Lisuantech is dedicated to developing scalable chip designs for multi-layer graphics rendering, meeting the chip and computing power needs in various scenarios such as digital content creation, gaming, animation, film production, AR/VR, digital twin cities and factories, cloud desktops, intelligent cockpits, AI, and large models.

Moore Threads Expands to Wuxi, Attracting Market Attention

Over the past two months, Moore Threads has drawn significant attention for two reasons. First, in September, the company announced plans to “focus on Wuxi strategically” and to establish a manufacturing headquarters for AI SoC chips and intelligent terminal manufacturing, as well as a headquarters for intelligent computing cluster business in Wuxi’s Huishan District.

In terms of financing, Moore Threads has already secured investments from government funds, leading venture capital firms, and capital across the industry chain, including Guosheng Capital, China Mobile, Shenzhen Capital Group, Sequoia China, Five Source Capital, GGV Capital, ByteDance, and Tencent.

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• [News] China’s Core AI Industry Achieved a Market Size of Nearly CNY 600 Billion

(Photo credit: Birentech)

China’s Manufacturing PMI remained in contraction in September, according to data released by China’s National Bureau of Statistics on September 30.

China Manufacturing PMI was 49.8% in September, showing a slight improvement of 0.7% from the previous month but still below the 50-point mark, indicating a continued contraction in the manufacturing sector. Among the sub-indices, only the production index returned to expansion, while other key indicators remained in contraction, reflecting the ongoing weakness in China’s manufacturing industry.

In the non-manufacturing sector, the Business Activity Index slightly declined from 50.3 in the previous month to 50 in September, halting a two-month rise. By industry, the construction business activity index was stable at 50.7, while the services business activity index fell from 50.2 to 49.9, marking its first contraction this year. All major sub-indices declined in September, pointing to persistently weak consumer demand even after a brief summer stimulus.

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Caixin PMI Also Shows a Slowdown…

Similarly, the Caixin PMI, which focuses more on small and medium-sized enterprises, showed a downturn in both manufacturing and services in September.

The Caixin Manufacturing PMI fell from 50.4 in August to 49.3. The production index remained in expansion but at a slower pace, while the new orders index dropped into contraction, reaching its lowest level since October 2022. The employment index remained in contraction, reflecting continued layoffs as a result of weak new orders. Although import prices decreased due to lower metal costs, weak demand further suppressed output prices.

In the services sector, the Caixin Services Business Activity Index declined from 51.6 in August to 50.3, staying barely in expansion but reaching its lowest point since October 2023. The new business index fell, only slightly above the contraction threshold, while stable external demand kept the export index in expansion. The employment index improved slightly into expansion, driven by new business, though the overall expansion remained weak. Input prices rose due to higher material and labor costs, but weak domestic demand and increased competition put downward pressure on selling prices.

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Overall, continued weakness in domestic demand has led to declining new orders and business across both manufacturing and services, with manufacturing particularly affected. As business activity declines, companies are facing greater pressure to cut labor costs, further suppressing consumer spending. Rising material costs combined with falling product prices are also eroding business confidence in future prospects. Although the Chinese government has implemented substantial monetary easing measures and promised more support if needed, some economists believe that fiscal policies will also be necessary to address domestic demand shortfalls, as recent stimulus measures have had only short-term effects.

Last week, the People’s Bank of China introduced significant easing measures targeting interest rates, the real estate market, and the stock market, leading to a nearly 16% rebound in the CSI 300 Index from its low. Meanwhile, although the S&P 500 had already priced in the Federal Reserve’s 50 basis point rate cut, it continued to hit record highs, buoyed by ongoing gains in tech stocks. In the bond market, the yield spread between the U.S. 10-year and 2-year Treasuries remained steady at around 20 basis points. The U.S. Dollar Index continued its downward trend, consolidating around 100.

Key Economic Data Review for Last Week:

U.S. PCE: The Personal Consumption Expenditures (PCE) index for August increased by 2.2% year-over-year (previously 2.5%) and 0.1% month-over-month (previously 0.2%). The decline in PCE growth was mainly due to falling goods prices, which saw a year-over-year decrease of -0.9% (previously -0.2%), while services prices remained steady with a year-over-year increase of 3.7%. Excluding food and energy, core PCE rose by 2.7% year-over-year, a slight increase from the previous month’s 2.6%.

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China Industrial Enterprises Total Profits: China Industrial Enterprises Total Profits fell by 17.8% year-over-year in August, a sharper decline from July’s 4.1% drop, marking the largest decrease this year. High-tech manufacturing profits, the largest contributor, declined in August, with cumulative year-over-year growth for January to August standing at 10.9% (previously 12.8%). Additionally, profits in mining and consumer goods manufacturing continued to fall due to weak demand, further exacerbating the downward pressure on overall industrial profits.

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Australia Monetary Policy: The Reserve Bank of Australia (RBA) kept interest rates unchanged in its September meeting. The meeting statement indicated that restrictive financial conditions are slowing the economy. While household consumption is expected to rebound in the second half, if the recovery pace falls short of expectations, economic output may remain weak, leading to further slack in the labor market. The RBA also noted that recent data has heightened inflationary risks, and inflation is now expected to return to the target range by the end of 2025 (previously mid-2025).

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Key Data to Watch This Week:

China PMI (September 30): China’s August Manufacturing PMI was 49.1 (previously 49.5), marking the fourth consecutive month of contraction. Nearly all sub-indices declined in August, remaining in contraction territory. Given the still-weak domestic demand and the incomplete impact of monetary policies, the market expects the September PMI to hold steady around 49.5.

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U.S. ISM PMI (October 1): The U.S. Manufacturing PMI for August was 47.2 (previously 47.4). New orders and production indices fell to 44.6 (previously 47.4) and 44.8 (previously 45.9), continuing to reflect the restrictive financial conditions and uncertainties surrounding the presidential election, which have dampened corporate investment. The market expects manufacturing to exhibit uneven recovery, with the September PMI to remain around 47.6.

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U.S. ISM NMI (October 3): The Non-Manufacturing PMI (NMI) for August was 51.5 (previously 51.4). Despite declines in business activity and employment indices, all indices remained in expansionary territory, indicating overall healthy growth in the services sector. With the U.S. holiday season approaching, the market expects the September NMI to hold steady around 51.5, continuing a trend of moderate growth.

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U.S. Employment Situation (October 4): The U.S. unemployment rate for August was 4.2% (previously 4.3%), remaining near historic lows, with nonfarm payrolls increasing by 142,000, within the safe range of 100,000 to 200,000. Additionally, recent initial jobless claims have stopped rising, indicating a slowdown in labor market weakening. Moving forward, it will be important to monitor whether the job market can maintain its current state without deteriorating following the Fed’s rate cuts. The market currently expects the September unemployment rate to stay at 4.2%, with nonfarm payrolls increasing by around 140,000.

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Rumors have been circulating that NVIDIA has stopped taking orders for its H20 chips customized for China since August. Now, according to the latest report by Bloomberg, regulators in China have been advising companies against buying H20, as part of the country’s strategy to bolster its semiconductor industry and respond to further US sanctions.

As the initiative aims to boost the market share of domestic Chinese AI chip manufacturers, Huawei and Cambricon Technologies, which are leading AI processor makers in China, may turn out to be the major beneficiaries, Bloomberg suggests.

Beijing’s approach has been more of a guideline than a strict prohibition, as the authority still hopes to support its own AI startups, the report notes.

However, it is indicated that in recent months, several Chinese regulators, including the Ministry of Industry and Information Technology, did issue the so-called “window guidance”—informal instructions that lack legal authority—to minimize the use of NVIDIA.

It is worth noting that China has a thriving AI sector amid US restrictions. Major tech player like ByteDance and Alibaba are making significant investments, while numerous startups are vying for dominance. According to an earlier report by The Information, it is rumored that ByteDance has ordered over 200,000 NVIDIA H20 chips this year for AI model training, costing it over USD 2 billion.

In addition, there are six rising stars in the country’s development of large language models, which are crucial for generative AI, including 01.AI, Baichuan, Moonshot, MiniMax, Stepfun, and Zhipu, Bloomberg notes.

According to Bloomberg, some companies are disregarding the Chinese directive to avoid H20 chips, hastily acquiring more before a potential US sanction by the end of the year. However, they are also purchasing domestic Huawei chips to appease Beijing.

As early as in 2022, the US government prohibited NVIDIA from selling its most advanced AI processors to Chinese clients to curb Beijing’s technological progress. In response, the AI chip giant launched a series of AI chips tailored for the Chinese market, including H20, L20 and L2. According to a previous report by Wccftech, H20 GPU has 41% fewer Cores and 28% lower performance versus H100.

NVIDIA declined to comment to Bloomberg’s report, neither did China’s Ministry of Commerce, Ministry of Information and Technology, and Cyberspace Administration respond, Bloomberg notes.

In a separate statement, NVIDIA CEO Jensen Huang noted in an interview with Bloomberg Television that he is focused on serving customers in China while adhering to US government restrictions.

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• [News] Nvidia’s Custom H20 Chip for China Reportedly Halted

(Photo credit: NVIDIA)