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)

China’s industrial enterprises’ profits saw a significant decline in August, according to data released by the National Bureau of Statistics on September 27. In August, industrial profits fell by 17.8% year-over-year, a sharp decline from July’s 4.1% increase, marking a 21.9 percentage point decrease and the largest drop so far this year, ending two consecutive months of accelerating growth. From January to August, the cumulative annual growth rate of profits for industrial enterprises above a designated size was 0.5%, down from 3.6% in the January-to-July period, representing a 3.1 percentage point decrease.

National Bureau of Statistics industrial statistics expert Yu Weining stated that the sharp decline was mainly driven by insufficient domestic demand and the impact of extreme weather conditions. High-tech manufacturing, a key profit driver, also experienced a decline in August, with cumulative growth for January to August at 10.9%, down from 12.8% in the January-July period. Additionally, profits in sectors such as mining and consumer goods manufacturing continued to shrink, further exacerbating the downward pressure on overall industrial profits.

Facing Economic Growth Challenges, PBOC Unveils a Series of Solutions：

In response to a series of weak economic data, the People’s Bank of China (PBOC) introduced a range of easing policies on September 24, targeting interest rates, real estate, and the stock market.

Interest rate: The PBOC lowered the reserve requirement ratio for financial institutions by 0.5 percentage points, bringing the weighted average reserve ratio down from 7% to 6.6%. The central bank indicated it would continue to monitor market conditions and could reduce the ratio further by 0.25 to 0.5 percentage points if necessary. Additionally, the PBOC’s main policy rate, the 7-day reverse repurchase rate, will be reduced from 1.7% to 1.5% to guide market lending rates (LPR) lower.

Real Estate: The PBOC will direct commercial banks to lower mortgage rates by 0.5 percentage points and reduce the down payment ratio for second homes from 25% to 15%. Furthermore, for the 300-billion-yuan in affordable housing re-lending established in May, the PBOC will increase its support ratio from 60% to 100%.

Stock Market: The PBOC will allow securities, funds, and Insurance firm to pledge assets to the central bank in exchange for liquidity. Additionally, the PBOC has introduced a share repurchase and equity increase loan facility to provide listed companies with funding for share buybacks and equity increases.

Overall, as global demand weakens and exports hard to sustain the national economy, the PBOC implemented a more aggressive easing policy just days after the U.S. Federal Reserve’s rate cut. This move aims to mitigate the risks of RMB depreciation and capital outflows, while slightly alleviating the pressure to meet economic growth targets.

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Recently, a report by People’s Daily notes that according to data released by China’s customs authorities, in the first eight months of this year, China’s integrated circuit (IC) exports amounted to RMB 736.04 billion, an increase of 24.8%. IC exports have surpassed automotive exports (which totaled RMB 540.84 billion during the same period), making ICs a major category in China’s export products, according to the report.

The data suggests that China’s IC exports are gradually recovering from downward pressure and regaining momentum.

Looking at a longer time frame, the report suggests that China’s IC export value has grown more than 1.5 times over the past decade. In 2023, China’s IC export volume and value reached 2,678 billion units and RMB 956.77 billion, respectively, representing increases of 74.5% and 155.9% compared to 2014, when the figures were 1,535 billion units and RMB 956.77 billion.

From 2022 to 2023, the global chip industry experienced a downturn, with the market’s main focus shifting from “chip shortages” to “inventory reduction,” the report notes. According to a report by the Semiconductor Industry Association (SIA), global semiconductor sales in 2023 totaled USD 526.8 billion, a year-on-year decrease of 8.2%. Affected by this, China’s IC export growth rate dropped to 3.5% in 2022 and -5% in 2023, ending five consecutive years of double-digit growth.

However, since the beginning of 2024, the situation has started to improve, the report says. In August, China’s IC exports reached RMB 95.18 billion, a year-on-year increase of 18.2%. The export value has seen year-on-year growth for 10 consecutive months.

ICs are considered a typical cyclical industry, with cycles averaging every four to five years. Analysts cited by the report believe that the industry is currently emerging from the shadow of recession. Innovations in AI applications, such as ChatGPT, along with the trends of automotive electrification and intelligence, will continue to drive the stabilization and upward trajectory of the IC industry.

While South Korean memory giants Samsung Electronics and SK hynix saw their sales in China double in the first half of this year, the country as a whole seems to heavily rely on China for essential semiconductor raw materials as well, with silicon, germanium, gallium and indium seeing the largest increase, according to a report by the Korea Eximbank Overseas Economic Research Institute on September 24 cited by Business Korea.

Despite the efforts to diversify supply chains, the report highlights the growing reliance of South Korea on China for critical semiconductor raw materials. For instance, the importance of silicon, a vital component in silicon wafer production, has been increasing, as the country’s reliance on China for the ingredient rose from 68.8% to 75.4% in 2022, the report states.

Meanwhile, South Korea’s reliance on rare earths, which are used in semiconductor abrasives, is also said to be on the rise, the report notes. The reliance on tungsten, crucial for semiconductor metal wiring, experienced a slight increase as well.

It is worth noting that since August of last year, the Chinese government has imposed export restrictions on critical minerals, including germanium and gallium, as a counteract to U.S. export sanctions. According to the U.S. Geological Survey, China produces 98% of the world’s gallium and 60% of germanium.

Even before the sanction, there is a significant rise in South Korea’s dependence on China for these critical minerals. Business Korea notes that the country’s dependence on germanium, which is frequently used in next-gen compound semiconductors, surged by 17.4 percentage points to 74.3% in 2022.

In addition, reliance on gallium and indium increased by 20.5 percentage points to 46.7%, according to the report.

Under the scenario of China’s export restrictions on key minerals, which were implemented in August and December of last year, the local production by major Chinese companies has not significantly declined, the report notes.

For instance, Samsung’ NAND flash facility in Xi’an, China, has increased its share for the company’s total NAND capacity during the past few years, from 29% in 2021 to 37% in 2023, with expectations to reach 40% this year, according to the report.

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• [News] China’s Gallium and Germanium Export Restrictions Risk Chip Production Shortages
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(Photo credit: Samsung)

Faced with the dual challenges of an aging population and a sluggish economy, China has decided to undertake a significant reform, announcing the first increase in the retirement age since the 1950s. The new policy raises the retirement age for men to 63, while for women, it will be adjusted to between 55 and 58, depending on the nature of their work. Experts suggest that the rapid pace of China’s aging population makes delaying retirement an unavoidable choice.

Currently, the retirement age for blue-collar male workers in China is set at 60, while for female workers it is 50. Female white-collar workers retire at 55. These retirement ages were established in the 1950s when the average life expectancy was around 40 years. In addition to raising the retirement age, the period for contributing to the pension fund will also be extended—from 15 years to 20 years starting in 2030.

China’s population is aging rapidly. The Chinese Academy of Social Sciences warned this year that the public pension system, which is the main source of income for most elderly people in China, will run out of funds by 2035.

Continuous Population Decline

The reason for the dwindling population is that China’s low birth rate is advancing faster than that of other countries. In 2022, China’s National Bureau of Statistics reported that, for the first time, the year-end population decreased by 850,000 compared to the previous year, marking a turning point from population growth to decline. In 2023, the population further decreased by 2 million, marking the second consecutive year of decline.

Read more at Datatrack

In 2022, China’s total fertility rate dropped to 1.05 children per woman, down from 1.5 in 2019. The working-age population in China is expected to decline from 976 million this year to 938 million by 2030. With various government policies aimed at boosting the birth rate proving ineffective, there is an urgent need to adapt to an aging society with a lower fertility rate.

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Rapid Formation of an Aging Society

Reports indicate that last year, China surpassed the United Nations’ threshold for an “aging society,” with at least 14% of its population aged 65 and above. By around 2035, the proportion of people aged 65 and over is expected to increase to 30%.

At this rate, China could move from an aging stage to a super-aged stage in just nine years—a pace faster than any major country except South Korea. Japan took 11 years to make the same transition, Germany took 34 years, and the United States is expected to make this transition in 14 years.

Meanwhile, China’s fiscal situation has been deteriorating. Due to weak domestic demand and low business confidence, China’s fiscal revenue fell by 2.8% year-on-year in the first half of this year. Local governments have struggled to cope with a fiscal crisis as their revenue from land sales has dried up. Internal analysis in China suggests that delaying the retirement age to 65 by 2035 could reduce the pension budget deficit by 20%.

The Chinese government began discussing delaying retirement as early as 2008 but has been hesitant to take action due to concerns about political backlash. Now, with youth unemployment already high and the economy sluggish, the announcement of a retirement delay is bound to bring additional social pressure. Political commentators see this as a necessary course adjustment, arguing that faced with the worsening demographic challenge, the Chinese government has no other choice.

(Photo credit: Flickr/Thomas Berg CC By2.0)