Asia Tea Time - Cup 50 ☕

This week I talk Chinese government chip bans on US companies, cash options for getting a yield and baby bonuses in Korean corporates.

Macro in Asia

China’s government bans semiconductors from Intel and AMD

China’s government has announced it will start to phase out US processors in government computers and servers.

This effectively sees a ban on big chip suppliers from the US, including Intel and AMD.

Why it’s happening

• China has been looking to replace its reliance on US technology before it’s frozen out anyway by US sanctions.

• It’s about data security nowadays, especially when it comes to US-China relations. Obviously the government in China wants to keep its technology supply chain as domestic as possible.

Why it matters

• Semiconductors are a big deal. They power everything nowadays and China still imports around 90% of its semiconductor requirements. 

• While it’s a big place for chip firms to export to, China only produces about 15% of global semiconductor output – a stat that the Chinese government wants to change. 

What’s next?

• More sanctions and tariffs. That’s the likeliest thing to watch as the US will attempt to continue to squeeze China in any way possible to keep its technological lead.

Tim’s Take 

China and the US seem to trade blows on sanctions or tariffs at least once every few months.

The latest semiconductor ban is less of an actual “ban” and more of a “phase out” as the language suggests. 

The initial order by the finance ministry and the Ministry of Industry and Information Technology (MIIT) was first unveiled in late December.

Of course, there’s a list of “safe and reliable” processors and operating systems when Chinese government agencies make purchases. Surprise, surprise – the list has only 18 approved processors and they’re all Chinese.

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What’s less of a headline is the fact that this phase-out of US-designed chips is actually a rather narrow order in the grand scheme of things. 

That’s because it only applies to government computers and servers, which are really only a fraction of the computing power in China.

Remember that China was already banned, by US sanctions, from buying advanced chips. These related mainly to Nvidia’s cutting-edge H100 and A100 graphics processing units (GPUs) that are integral for AI processing. 

Some further sanctions were later introduced in October 2023 that aimed to cut China’s access to workaround chips that Nvidia has designed for its Mainland Chinese customers.

Overall, what is noticeable in this battle between the world’s two largest economies is how much Chinese companies disproportionately suffer in comparison to their US peers.

It was telling that both Intel and AMD – the US firms cited as the companies that will suffer most from this government ban – actually saw their share prices end the past week up. 

It’s almost as if news of Chinese sanctions on US tech companies are materially meaningless.

That’s in contrast to, say, a company like WuXi Biologics – a Hong Kong-listed Chinese biopharm outsourcer – which was called out by US lawmakers for potential sanctions.

That came as the country looks to clamp down on Chinese biotech firms’ access to the US. WuXi Bio’s shares plunged around 10% on news of that potential bill and have been volatile ever since. 

It highlights just how global investors view the two countries and the “investability” factor of their publicly-listed companies. 

In terms of the overall effect of travel for relations between China and the US, it seems to be par for the course. Don’t expect the battle over tech to improve any time soon.

Tim’s money tip of the week

When we talk about how much we should be saving in cash, I recently mentioned we should aim for 10%.

But what do we do with that cash? Ideally, we don’t want those savings to be sitting earning 0% interest so we should be at least earning a yield on it if it’s there for our spending in the next one to three years.

As I also explained previously, money market funds (MMFs) are a popular example of a cash-like instrument that can still give you a yield.

Other ones are instruments like Singapore T-bills (basically short-term government bonds) and Singapore Savings Bonds (SSBs).

These are backed by the Singapore government so are completely risk-free. Their yield varies though, from a 3.8% annualised yield for the latest 6-month Singapore T-bill to just 2.95% for the first seven years of the latest SSB issuance.

As for MMFs, you can buy these on major wealth advisory platforms, like Endowus, or through most brokers.

Of course, do watch out for any additional fees (such as management or transaction fees) when purchasing a MMF that could eat into your returns.

Story of the week

It’s well known that many Asian countries have rapidly ageing populations. Well a South Korean company is taking it a step further and offering its employees a US$75,000 baby bonus.

Korean construction group Booyoung will pay its workers 75Gs for each baby they produce. South Korea’s fertility rate is among the lowest in the world and is projected to fall to just 0.68 this year.

That’s well below a fertility rate of 2.1 that is recognised as necessary to ensure a broadly stable population.

In addition to governments, it now seems that companies are going to try to help out too. However, with the cost of raising kids in many countries costing a small fortune, companies may want to substantially up that baby bonus.