Central Politburo Meeting and Trends in China’s Semiconductor Industry
1. Key Issues of the Central Politburo Meeting
Boosting Domestic Demand and Stabilizing People’s Livelihoods
- The core topic at the Chinese Central Politburo meeting is stimulating domestic demand.
- Key measures:
- Expansion of Fiscal Deficit Rate: Expected to increase from the current 3% target to a maximum of 4-4.5%.
- Increased Issuance of Government and Local Government Bonds:
- Focused on special government bonds and ultra-long-term bonds.
- The focus is on stimulating domestic demand and promoting the people’s economy.
- Policies to Boost Domestic Demand: Expansion of the “Trade-In” Policy.
- Replacing old products with new ones (appliances, automobiles, mobile phones, etc.).
- Increased subsidy support to boost related consumption.
- Higher support possible than the current 15% subsidy.
What to Lower and What to Defend
- Lower:
- Interest rate cuts.
- Reserve requirement ratio reduction.
- Reduced burden on businesses (reduced taxes, regulations, etc.).
- Defend:
- Stabilization of the real estate market.
- Containment of local government debt risk.
- Management of external risks (including US-China conflicts).
2. China’s Semiconductor Industry: Rising Challenge Centered on CXMT
CXMT and DDR5 Yield Issues
- CXMT (ChangXin Memory):
- Chinese semiconductor company that started producing DDR5 memory chips.
- Current estimated yield ranges from 20% to 80%, but technology is developing.
- Chinese Government Strategy:
- Huge investments in R&D to narrow the semiconductor technology gap.
- A semiconductor fund of 63 trillion won issued in 2023.
- Main investment directions: long-term memory product and AI semiconductor development.
Competition between China’s Semiconductor and South Korea’s
- Acceleration of competition with major South Korean semiconductor companies such as Samsung Electronics and SK Hynix.
- If CXMT’s DDR5 technology focuses on patriotic consumption and the domestic market, its market share may increase.
- Potential for activating patriotic consumption in the Chinese domestic market:
- Increased adoption of Chinese memory products in high-performance smartphones and computers led by Huawei.
3. China’s Development of Resilience Against US Sanctions
US-China Semiconductor Technology Gap
- Responding despite the inability to import EUV equipment:
- Utilization of existing equipment and engineering improvements.
- Streamlining production in cooperation with Huawei technology.
- Changes due to US sanctions:
- Pursuit of technological independence and diversification by Chinese semiconductor manufacturers.
- Moving away from US dependence and strengthening trade with Southeast Asia.
Successes and Failures of Semiconductor Funds
- Although there were some failures in the 1st (2014) and 2nd (2017) funds, the 3rd fund may contribute to technological improvements and production stabilization.
- Main uses of funds:
- Manufacturing innovation.
- Development of EUV alternative prototypes.
- Expansion of international market share.
4. US-China Tech War and Strengthening Domestic Demand
China’s Strategy Amidst Conflict with the US
- Preparing for Tariffs and Technology Regulations:
- Diversifying domestic and export networks despite US tariff policies.
- Lowering dependence on the US to about 17%.
- Shifting Direction to the Domestic Market:
- Strategically utilizing the “growth of China’s own consumer market.”
- Inducing a rise in the CPI (Consumer Price Index) to overcome deflation.
5. China’s Political and Military Stability: Changes in Leadership System
- Military Purges within the Xi Jinping Regime:
- Reorganization of some military organizations due to purges of pro-American personnel.
- Increased Chinese military competitiveness expected, centered around naval officers.
- Strengthening military reforms centered on nuclear submarines and aircraft carriers, and preparations related to Taiwan.
< Summary >
- China is continuing its efforts to increase consumption of home appliances and automobiles through expanding the fiscal deficit rate, issuing government bonds, and implementing the “Trade-In” policy to revitalize domestic demand.
- Semiconductor companies such as CXMT are rapidly growing and competing with Samsung Electronics and SK Hynix.
- Growing by pursuing technological alternatives without EUV equipment, even amidst US sanctions.
- Despite US-China trade conflicts, China is strategically shifting to an economy centered on domestic demand and aiming for high-growth strategies.
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