D2D China: PRC SOEs Are Not Known for Their Risk Appetites

Changing directions for China's semis policies, a comprehensive look at AI policy, Nvidia's "compliance ballet", and more

Source: ChatGPT

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As the PRC government seeks to redirect its semiconductor industry towards a narrower set of policy objectives, it risks sowing the seeds of its failure.

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Noteworthy Items

Semis and Deep Tech

RAND published an important analysis of the PRC’s AI policies. While this does not answer the big question they pose - “Will it work?” - we think this piece is very helpful in pulling together the many disparate policy threads at play today.

“Nvidia’s Compliance Ballet” - balancing PRC demand against US restrictions. Most interesting for its outline of domestic AI competition.

Narrative violation: From the headlines, it is easy to assume that the PRC government is throwing money at AI companies. In reality, many GPU companies are struggling to raise capital. There is a conflict between high level policy goals and on-the-ground implementation.

On a related note, lots of mixed signals from the industry right now in regards to capacity, funding and consolidation. Last month we wrote that it looked like conditions were improving on this front, and that is still true, but it is not a smooth process. The press is filled with stories about restructurings gone awry, where one party backs out or another where the buyer itself went bankrupt.

An overview of the PRC Silicon Carbide (SiC) market, shows just how big it has gotten, with over 100 companies already. As one manager jokes “Every county in the Yangtze Delta” has an SiC plant. Needs to be read in light of Wolfspeed’s bankruptcy.

Financial round-up of a few chip companies. Rockchip is apparently doing well on the back of edge AI, but the real story is the claim that Changxin will start shipping HBM in the middle of next year. We all suspected it was coming, but this is the first time we have seen a date attached to it.

North Micro caught our eye because it is undergoing a somewhat dodgy sounding restructuring, but it turns out it is much more interesting for another reason. North claims to have a working FBAR filter. We have watched the PRC for years for a company with this capability, a few have made the claim, but this one just signed some form of patent agreement with Broadcom, which gives some credence to North’s claims. North is affiliated with Phytium, the CPU maker, and CEC, the sprawling state-owned electronics company, and so of course they are on the US government’s Entity List.

Software

TSMC announced its “EDA Alliance” - the EDA providers with the closest links to TSMC, essentially making them gateways to the foundry, a critical competitive barrier. PRC-based Primarius joined the list for the first time, but its peer Empyrean fell off. Our periodic reminder that EDA is seen by US regulators as a chokepoint in accessing leading edge fabs, but TSMC still gets a vote in the matter.

There is a growing number of robotics companies in the PRC. Just this week, a former Huawei employee launched a new company - AgiBot - which has its own vision/action model. And you can now buy a Unitree robot on Alibaba. But unfortunately, Xiaomi will not be selling its robot any time soon. We plan to do a lot of work on robots this year.

Automotive, Industrial and Macro-Economic

Secretary General Xi Jinping visited a 100-year old pipe factory. These kinds of story are staples of official newspapers in all Communist countries, but we thought this one was worth pointing out. These visits are meant as policy signals, and the message here seems to be - factories need to automate and get more high-tech and efficient. This speaks to the government’s goal of continuing to modernize the economy, but is this really what the PRC’s manufacturing sector needs right now?

EV maker Nio is looking for an IPO of its internal chip design business. All the leading auto makers in China are pushing ahead on their own chips. What is interesting here is the question as to why list it? That says as much about the evolving power dynamic in the industry.

We have lost count of how much trailing edge capacity is coming onstream in the PRC, but it is a big number. This is rippling across the supply chain there as incumbent foundries with 6” and 8” plants are getting driven out by newer 12” lines.

The PRC’s stock markets have lowered requirements to let unprofitable companies list. And of course, the majority of the companies in that category are semiconductor companies. This is highly reminiscent of the late 1990’s push by many stock markets around the world which made similar moves to tap into that Bubble.

Geopolitics

ASML reported disappointing earnings last week. This commentator blames the US government. That’s not entirely accurate, but interesting read to see how PRC press frames US sanctions and those who comply with them.

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Below we look at the emerging conflict between State Policy and Commercial Reality in the industry. As much as China’s tech and manufacturing industry seem to be unstoppable, we think there are many ways in which the whole complex is vulnerable, if not actually sowing the seeds of its own failure.

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