September 2024
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HOW CHINA MADE A DIFFERENCE THIS MONTH
Like a Bull in a China Shop
Just before China celebrated the 75th anniversary of the founding of the People’s Republic on October 1st, a series of policy measures were introduced to stimulate the economy and address pressing social issues such as declining demographics, rising youth unemployment, and urbanization inequality. These policies led to a surge in the stock market, which experienced its strongest performance since the 2008 global financial crisis, as Beijing committed significant resources to bolster the domestic economy.
Following disappointing economic data from August, China’s long-awaited strong fiscal and monetary policies were finally implemented. Many international commentators perceived Beijing’s actions as a reactive measure - an attempt to stabilize an economy in serious trouble. Few see it as a sustainable solution for economic growth beyond 2024. Critics liken Beijing’s approach to a "bull in a china shop," similar to the unplanned manner in which the Communist Party exited from its COVID policies. The prevailing view is that China’s economic situation is dire, prompting Beijing to "inflate" sentiment through new stimulus measures. However, I have a different perspective.
The bull that Beijing has unleashed in its "China shop" is far from reckless. In fact, Beijing has been grappling with the real bull - real estate and local government debt - by taking it by the horns, not just waving a red rag. The Chinese government has been actively deflating these economic bubbles to orchestrate a soft landing, paving the way for a future economic takeoff.
Western economists have often criticized Beijing for not stimulating the economy sooner, but is it wise to feed an angry bull? In my view, introducing swift stimulus measures right after the pandemic, during an economically challenging period, would have only made the Chinese people save even more, instead of spending to revive the economy. Developers and local governments would have been tempted to increase their debt or misallocate resources.
Today, the real bulls of the economy are exhausted, making it the ideal moment to start feeding the animal gradually, ensuring it regains strength without starving. And yes, the animal spirits have quickly returned!
How did Beijing "feed the beast"? The People’s Bank of China reduced the reserve requirement ratio (RRR) for banks by 0.5 percentage points, injecting approximately 142 billion USD into the financial markets to boost liquidity. More injections are expected later this year. Additionally, they lowered the seven-day reverse repo rate by 20 basis points and the interest rate on medium-term lending by 30 basis points to reduce borrowing costs.
To support the struggling property sector, Beijing cut mortgage rates for existing loans by 0.5% and reduced the minimum down payment for second homes from 25% to 15%. A new re-lending facility was introduced to provide funding for affordable housing.
In capital markets, which triggered a bull market last week, swap and re-lending facilities were established to increase liquidity for financial institutions, allowing companies to obtain funding through asset collateralization and share buybacks.
On the social front, China has implemented major reforms to promote high-quality employment by ensuring higher wages and expanding social insurance coverage to better protect workers. One of the key decisions is to gradually raise the retirement age over the next 15 years:
Additionally, starting in 2030, the minimum number of years required to qualify for a pension will gradually increase from 15 to 20 years. These measures are expected to delay the demographic challenge by a decade, pushing the anticipated pension shortfall in 2040 to support the 400 million pension-aged people to 2050.
When I was in Shenzhen last month, I learned about an issue that many prefer to keep quiet: Artificial Intelligence (AI) is contributing significantly to urban unemployment. The truth is already out in China. When the media discusses the high rate of urban youth unemployment in the country, they often attribute it to a sluggish economy. However, the sector that traditionally absorbs young, educated graduates in China is the tech industry—and these companies are still growing.
So, why aren’t they hiring? Many say it’s because they’re waiting for the economy to regain its confidence. But the reality on the ground is different: Chinese tech firms are implementing hiring freezes because they recognize that AI is taking over many roles typically filled by entry-level employees. Companies are reluctant to bring in inexperienced workers because letting them go later is costly. Instead, they are choosing to invest in AI rather than in human labor.
The real "unknown" in China’s job market is not when the economy will recover, but how quickly AI will advance to replace human jobs. In Europe and America, we’re still largely in AI denial - a situation that could impact us even more severely, as our economies are more service-oriented than China’s.
In every keynote I give, I emphasize that China’s political economic landscape is cyclical. There are phases of strict control and periods where Beijing loosens its grip. During the three pandemic years, we saw one restrictive measure after another, all aimed at shifting back to a sustainable growth model.
Now, China is entering an upward cycle marked by less control and new opportunities. Is this transition too late? Perhaps. It’s hard to say for certain. However, the reaction from global investors—who are eagerly buying up Chinese bonds and pushing up the stock market—suggests that confidence in the Chinese market will rebound just as quickly as it waned.
That said, the impact of the past years will linger, and scars will remain, and both consumers and entrepreneurs are likely to stay cautious for some time. Some have even left the country and might not return. Yet, anyone who has lived in China knows that the nation’s infrastructure, speed, and the resilience of its people are second to none.
I believe the Chinese bulls have awakened once again. Although still tired, they will soon demonstrate the strength and resilience that define China. The world may continue to be bull-headed or even attempt to "shoot the bull," but Chinese bulls represent strength, hard work, patience, and perseverance.
CHINESE INNOVATION NEWS – SEPTEMBER 2024
1. After 30 years, China’s BeiDou is a GPS rival.
2. China ready to defend Earth from asteroids
3. Palm-sized drone uses solar power, smashes records
4. DUV lithography breakthroughs
5. Chinese scientists create energy from lotus leaves
6. Chinese company develops graphite with over 99.9 pct purity
7. Chinese researchers isolate anti-HIV antibody from alpacas
8. China Generative AI updates September 2024
(Click the links in titles below to read a larger news article on each topic)
Twenty-five years ago, I represented a Belgian SME in Asia called Eonic Systems. This high-tech company developed an operating system that was utilized in the European Space Agency's Rosetta program. One of our key markets was Aerospace, and I had the opportunity to meet almost every space institute in China at the time. It was a fascinating period filled with hope. China was eager to explore space, build its own space station, and create an independent GPS system - something traditionally dominated by the Americans. They named their system "Beidou," which is also the Chinese name for the North Star, a symbol used for navigation in China for centuries. China successfully launched its first Beidou satellite in the year 2000.
The main objective was to reduce dependency on the American GPS system within China. However, to achieve global coverage, China needed a total of 35 Beidou satellites, which was completed in 2020. Today, Beijing’s capabilities extend far beyond domestic navigation. In fact, BeiDou has surpassed GPS in the number of satellites, monitoring stations, and, in some regions, even in locational accuracy.
The Beidou system is certainly a strong competitor to GPS, but it is unlikely to replace GPS as the global standard, since much of the world will continue to rely on it. However, as global complexities and geopolitical tensions increase, the satellite navigation industry is moving towards ‘multi-constellation’ receivers that are compatible with all major networks. China, with its Beidou system, is well-prepared to take on a significant role in this new landscape.
The probability of an asteroid hitting Earth is extremely low, but not zero. Although the chances of a catastrophic impact are small, the consequences could be devastating. The most well-known asteroid impact occurred 66 million years ago and contributed to the extinction of the dinosaurs.
Just last month, Asteroid 2024 RW1 entered the Earth’s atmosphere and burned up 25 kilometers above the Philippines. Interestingly, few media covered this incident. Asteroids can travel for millions of years, and when they enter the Earth’s atmosphere at speeds of dozens of kilometers per second, they usually burn up quickly. Being 25 miles away from impact is equivalent to being just 1 second away from hitting the Earth. It’s like running a marathon and collapsing from a heart attack just 1 cm before crossing the finish line. So, why worry?
In the past, we had no way of knowing which asteroids were dangerous or how to protect ourselves from them. But thanks to advanced telescopes and improved telecommunications, we can now monitor space more closely to safeguard against potential threats.
In 2022, NASA launched the Double Asteroid Redirection Test (DART) mission, where a spacecraft intentionally collided with the asteroid moonlet Dimorphos to alter its trajectory. Now, the European Space Agency's Hera mission is set to study the binary asteroid system Didymos and assess the impact of DART on Dimorphos.
This month, China announced its own asteroid defense plan, aiming to deflect an asteroid by 2030. The strategy will use an "escort plus impact plus escort" approach, which sounds similar to what NASA and the European Space Agency have been doing - combining both impact and observation techniques.
The big question is: where will China redirect the next asteroid? This feels like the beginning of a movie script... and I can easily picture Elon Musk starring as the main character, helping all the billionaires escape to Mars.
Let’s shift our focus to one of the smallest flying objects - a palm-sized drone. We all know that the Chinese company DJI dominates the drone industry, but a new invention from the Beijing University of Aeronautics and Astronautics is redefining the future of drones. Their palm-sized drone, which weighs less than a sheet of paper, features an innovative motor that allows it to keep flying as long as it receives natural sunlight.
Most micro-drones rely on electromagnetic motors to power their rotors, but these small motors often overheat at high speeds. While natural sunlight can be used as an alternative energy source, smaller drones have limited surface area to capture sunlight, restricting their flight time to 10 minutes or less.
To address these issues, China developed an electrostatic motor that uses the Coulomb force - the force between electrically charged particles at rest - to produce continuous rotating motion. This innovative design inspired the drone’s name: CoulombFly.
If you’ve ever wondered - probably not - where the word “drone” comes from, it traces back to the Old English word drān or drǣn, meaning male bee. The term was used to describe the buzzing sound bees make. I’m not exactly sure why I wanted to share this fun fact, but it made sense when I realized that a male bee weighs around 0.3 grams—about 10 times lighter than the CoulombFly.
If you haven’t caught the buzz about China yet, you’re missing out on the latest tech trends!
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I’m currently reading a fascinating book called Chip War: The Fight for the World’s Most Critical Technology by Chris Miller. The author provides a detailed history of the silicon industry, which has become the backbone of modern life.
Miller explains how DUV lithography technology has reached its physical limits, and there is no viable Plan B for EUV machines. Since China cannot access these advanced EUV machines, it raises the question: is there an alternative for China to manufacture 7nm chips or smaller? Can China develop its own DUV and EUV lithography machines?
China’s SMEE has made modest progress with a new EUV patent, but it still seems like a long march towards achieving Chinese dominance in chip manufacturing. China has now developed two new DUV machines operating at 193 and 248 nanometers (nm), with resolutions of 65 nm and 110 nm, and overlay accuracies below 8 nm and 25 nm, respectively.
This is still far behind ASML’s machines, which can achieve a resolution of 38 nm with an overlay accuracy of just 1.3 nm. However, once China reaches ASML’s level in DUV lithography, it’s likely that it will position itself as the manufacturing hub for traditional chips worldwide. Considering that 80% of all microchips globally are still produced using DUV lithography, China may end up building significant (even excessive) capacity for chips above 7 nm.
This could make the world heavily dependent on China as the primary producer of ‘mature’ chips. That’s why, in my opinion, China’s enthusiasm for its DUV breakthroughs is still highly relevant.
Chinese scientists have developed an energy generator that harnesses the natural process of plant transpiration to produce electricity. This breakthrough has the potential to transform nearly every leaf on Earth into a sustainable and continuous energy source.
The new technology, demonstrated using a lotus leaf, successfully generated enough electricity to power small electronic devices and could pave the way for plant-powered energy networks.
The concept, known as hydrovoltaic electricity, relies on the movement and interaction of water with solid surfaces. Existing devices typically need a constant water supply to function. However, the natural transpiration process of plant leaves -one of the largest water fluxes on land - contains vast amounts of latent energy that has rarely been directly harvested until now.
A transpiration-based generator offers several advantages: it requires simple equipment, comes at low costs, and doesn't need a large-scale water source. It could serve as a power source for remote areas like farmland, without requiring extensive infrastructure. While it may not meet all global energy needs, it's poetic that Lotus leaves could contribute to restoring purity, resilience, harmony, and balance to our planet – symbolizing the grace and perfection of the Lotus.
A research team from China Minmetals Corporation has developed a purification technology that achieves graphite with a purity rate exceeding 99.99995 percent. But does the world really need sharper pencils? Higher purity in graphite enhances its lubricity, conductivity, corrosion resistance, and chemical stability. These properties make high-purity graphite invaluable in advanced industrial sectors such as aerospace, superconductors, batteries, and semiconductors. In today's world, graphite has become a geopolitical resource!
A year ago, China tightened its export restrictions on graphite, gallium, and germanium in response to trade barriers against the country (newsletter september 2023). China refines over 90% of the world's graphite, which is essential for virtually all electric vehicle (EV) battery anodes. The China Minmetals Corporation owns significant graphite reserves in northeast China and has established a mineral processing plant there, with an annual output of 200,000 tons.
By the end of 2023, overseas graphite sales plummeted by 91%, dropping to just 4,000 tons per month. In response, the United States has announced the creation of a minerals-security finance network with its allies, marking a new effort to counter China's dominance in critical minerals. This shift reflects a broader competition between China and the West from pencil to power.
Last week, I traveled to London with my wife for the Anatomy & Beyond conference and exhibition. She showcased her artwork in London’s old operating theatre, while I was invited to speak on AI in healthcare in China. Afterward, we visited the exhibition "Outlaws: Fashion Renegades of 80s London" at the Fashion & Textile Museum. This show focused on the provocative designer and performance artist Leigh Bowery, as well as the legendary nightclub Taboo. Leigh Bowery passed away from AIDS-related complications in 1994 at the age of 33 after living with HIV for six years. Tragically, even today, thirty years later, half a million people around the world still die from this disease.
While current antiretroviral therapies effectively extend the lifespan of patients, they can lead to significant drug resistance in HIV. Now, a Chinese research team has isolated an antibody from alpacas that can effectively inhibit the virus. This new approach in developing anti-AIDS drugs focuses on how the virus enters host cells.
In this process, a receptor called CD4 acts as a "doorknob," which the virus uses to unlock the cell's "door." The researchers isolated the CD4 nanobodies from alpacas. Importantly, this newly discovered antibody targets the "doorknob" CD4 rather than the virus itself, making it less likely to cause drug resistance. This breakthrough has significant implications for developing new anti-AIDS drugs and improving clinical treatment.
8. China Generative AI updates of September 2024
The online dating scene and virtual companionship market in China have exploded, driven by AI technologies that search for zodiac signs, personality matches, and even create virtual boyfriends and girlfriends. In light of this rapid development, Chinese experts are now urging Beijing to establish clear legal and ethical guidelines.
China has proposed new guidelines that mandate the labeling and identification of content generated by AI. Online content providers will be required to use clear labels - such as text, sound, or graphics - for all AI-generated text, video, audio, and virtual scenes. This marks the beginning of a new phase of stringent regulations and high compliance standards in China's generative AI services sector.
Alibaba Cloud has recently launched its open-source Qwen 2.5 models, which range from 0.5 billion to 72 billion parameters. These models feature improved capabilities in mathematics and coding, support over 29 languages, and are designed to cater to a wide array of AI applications across various sectors, including automotive, gaming, and scientific research.
Chinese AI start-up MiniMax has launched Video-01, a text-to-video generation model capable of creating videos up to six seconds long in just two minutes.
Beijing has approved AI-powered software designed to assist in the examination of MRI scans for intracranial aneurysms, helping doctors treat patients more quickly and accurately. Timely diagnosis is crucial for preventing brain diseases.
Bytedance is planning to develop an AI model primarily utilizing chips from Huawei. While there is much speculation surrounding Bytedance’s large language models (LLM), I believe they have the potential to become one of the biggest generative AI companies in the world. With their financial resources, user base, talent, and experience, they are well-positioned to excel in the generative AI race in China.
Bytedance's new LLMs, Doubao-PixelDance and Doubao-Seaweed, can handle complex and sequential motions, allowing them to produce videos of 10 seconds and 30 seconds in length.
China has reportedly discovered a method to successfully train a single generative AI model across multiple data centers in different locations, enabling them to circumvent the chip restrictions imposed by the U.S.
A report from a U.S. think tank, which analyzed various data points including published scientific articles, patents, talent, and infrastructure, found that China’s strong academic foundation, innovative capabilities, and state-backed funding are positioning the country as a significant challenger to U.S. leadership in the AI sector.
Alipay has introduced its AI-powered life assistant, Zhixiaobao, utilizing Ant Group’s proprietary foundation model, Bailing. This assistant helps users order meals, hail taxis, and book tickets through text or voice prompts. It’s reminiscent of Tony Stark's assistant, Jarvis, bringing those sci-fi dreams closer to reality. Check out the article in the South China Morning Post (SCMP) for more details.
If you know of any other breaking China innovation news from September 2024 that I missed, do let me know so I can add it in next month’s newsletter!
KEEP TUNED!
Managing Director chez LBO France
2moI used to speak to some European investors, you will see that some of them have limited their understanding of China by so-called big Western media and then some of them said that they only do business in the US and Europe with no interest in looking at China/Asia. Back in 2000, we, Chinese thought that we were isolated from the world and we needed to go aboard, while it's exactly the same situation now in the US and Europe, very few people understand or try to understand the trends in China. Considering China as a sales market is still viable, but it's also a world leading R&D center. On some specific technologies such as new material, Europe may still have 2-3 years in advance (while so difficult to industrialize the new material in Europe), but China is catching up very quickly or bypassing with even better technology or approach. So advice to European companies, take the advantage as you can and become as local as you can in China, you will still have the chance......
I use my 48 years global experience as a school principal, businessman, broadcaster, publisher and event planner to help my clients better communicate their stories and key messages with their target audiences.
2moAlways a good read, Pascal. I'd love to meet you here in Zhuhai sometime and look at the developments taking place in the printer and imaging supplies industry,
I'm always fascinated by China's rapid advancements, but this newsletter really highlights their ambition across multiple sectors. From space tech to biomedical breakthroughs, it's clear they're not just catching up, but aiming to lead. The economic stimulus is significant, but I'm more intrigued by the innovations like the solar-powered micro-drone. It makes me wonder how these developments might reshape global tech dynamics. I'll be keeping a close eye on their AI progress too!
Bridge China-European cultural differences within business environments
2moFantastic overview. The AI topic combined with the pensions leads to only one conclusion: automated industry must share its profits with society, be it via universal basic income UBI, or paying retirement for everyone or however. Profits cannot be fully left to owners of AI technology, otherwise neo-feudalism is unavoidable.
Campaign Director for Smalltalk Renaissance
2moI'm always amused when Western economists try to tell China what to do to bolster its economy. If they were so smart, why is it that their economies (US, Canada, UK, France, Germany, Italy, Japan) are in the toilet? Compared to these economies, China's is doing quite well, thank you very much. Despite economic headwinds, China's GDP is expected to grow 4.5-5.0% this year. The G7 economies would kill to have these kinds of numbers. I have every confidence that China will continue relatively strong growth for years to come. Do not underestimate the Chinese.