Shanghai Beat

Recent data shows that China’s dominance in the legacy chip market is growing as U.S. export controls fail to restrict its production.

While the U.S. and its allies have been focusing on controlling China’s access to advanced chips for cutting-edge applications, Chinese chip production in the first quarter of this year increased by 40%.

According to TrendForce, mainland Chinese firms could account for 33% of the legacy chip market by 2027.

Analysts suggest that China’s potential success in this market is a result of its support for strategic sectors, aiming to secure its industrial supply chain.

Despite export restrictions imposed by the U.S., Chinese chip manufacturers are turning to the production of less advanced chips in order to start their operations and gradually scale up.

However, concerns have been raised about oversupply and potential price wars in the chip market.

Additionally, some U.S. allies continue to sell chipmaking tools to China, making it challenging for non-Chinese companies to compete.

The Biden administration has allocated funds to expand local chip manufacturing in an effort to address this issue, but whether these efforts will be sustainable remains uncertain….

Chinese government bonds are experiencing an influx of money, leading to soaring prices and record-low yields. Investors are seeking a safe alternative amidst the struggling real estate market and volatile stocks. The yield on China’s 10-year government bond hit a low of 2.18% on Monday, the lowest since 2002. As bond prices rise, yields fall, which is causing anxiety among policymakers in China. There are concerns that the bond market is forming a bubble, potentially leading to a crisis similar to the collapse of Silicon Valley Bank (SVB). The People’s Bank of China (PBOC) has issued multiple warnings about the risks of a bond bubble, and it is now taking unprecedented action by borrowing bonds to sell in order to dampen prices. Insurance companies, investment funds, and other financial firms holding medium and long-term bonds are particularly vulnerable. The rapid decline in Chinese bond yields poses economic risks, reinforcing expectations of rate cuts and weak growth. This frenzy in the bond market also counteracts efforts to stimulate economic activity and may widen the interest rate spread between the US and China, resulting in capital outflows and pressure on the yuan….