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  • Huawei’s 3nm Chips 💎 Temu Tops E-Commerce 🚀 Saudi Backs OpenAI Rival with $400M 💰

Huawei’s 3nm Chips 💎 Temu Tops E-Commerce 🚀 Saudi Backs OpenAI Rival with $400M 💰

China Insights Weekly: Unpacking China’s Economic and Technological Advances

2024-06-02 | subscribe | homepage

Welcome back to China Insights Weekly for our latest edition. We've sifted through hundreds of sources to bring you the latest business and tech insights on China in under 5 minutes.

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🚀 Headlines

The International Monetary Fund on Wednesday raised its forecast for China’s growth this year to 5%, from 4.6% previously, due to “strong” first-quarter figures and recent policy measures. China’s economy grew by a better-than-expected 5.3% in the first quarter, supported by strong exports. Data for April showed consumer spending remained sluggish, while industrial activity picked up. The upgrade followed an IMF visit to China for a regular assessment. The organization now expects China’s economy to grow by 4.5% in 2025, up from the previous forecast of 4.1%.

Saudi Arabia’s Prosperity7 Ventures, LLC joined the latest financing round for up-and-coming startup Zhipu AI, becoming the first known foreign firm to back a major Chinese player in generative artificial intelligence. The fund, an arm of Saudi Aramco, joined a recent investment that valued the Beijing-based startup at about $3 billion. Previously Zhipu and its closest rivals — Moonshot AI, MiniMax, and 01.ai — have been dependent on support from government funds and large, local cloud providers. The startup, which has released a chatbot and a visual language foundation model, has also secured backing from Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

PDD’s value-for-money positioning and growth of its Temu marketplace have helped the company lead China’s e-commerce arena. The company which also owns the Chinese discount shopping app Pinduoduo has a market cap of about $208 billion, compared with Alibaba’s $196 billion. PDD’s net income attributable to ordinary shareholders in the March quarter surged 246%, while that of Alibaba plunged 86%.

PDD’s first major push overseas came with Temu in September 2022 whose popularity skyrocketed shortly after it aired a Super Bowl ad in 2023 that invited customers to shop “like a billionaire.” Bargain-hungry Americans have been flocking to Temu, as it looks to continue to grow rapidly in the US. Temu has also aggressively expanded into Australia, New Zealand, France, Italy, Germany, the Netherlands, Spain, as well as the U.K.

On May 21, Alibaba Cloud announced a significant price drop for its large models, offering varying levels of free access and price reductions for both open- and closed-source versions. However, only four hours after Alibaba Cloud’s announcement, domestic rival Baidu responded by making its Ernie Speed and Ernie Lite models free to use. The catalyst for this price drop was the release of the DeepSeek V2 model, backed by the quantitative fund High-Flyer, which owns over 10,000 Nvidia A100 GPUs on May 6. It ranks among the top domestic models based on performance offering API pricing at just RMB 1 per million tokens for computation and RMB 2 per million tokens for inference.

Aside from the disruption in pricing, 36Kr noted a renewed focus on smaller but more cost-effective models. As price becomes a major consideration for downstream customers, pricier large models have become less attractive, prompting market players to adjust their offerings accordingly.

France’s Renault Group and China’s Geely announce the creation of a leading 15-billion-euro global powertrain technology joint venture (link)

Following the agreements signed on July 11, 2023, by Renault Group and Geely, and after obtaining the approval of the relevant authorities, HORSE Powertrain Limited was officially created on May 31, 2024, with each group holding a 50% stake in the new company. The joint venture’s complementary product portfolio and regional footprint could offer solutions for 80% of the growing global hybrid and combustion powertrain market.

Industrial customers include Renault Group, Geely Auto, Volvo Cars, Proton, Nissan, and Mitsubishi Motors. From day one of its establishment, the new entity is a worldwide leader in hybrid and combustion powertrain solutions, with 17 global plants, nine customers in 130 countries, five R&D centers, and 19,000 employees. It expects annual revenue of 15 billion euros from sales of five million powertrain units per year of all types of hybrid solutions.

Western pharmaceutical companies and investors are driving a record number of licensing deals with Chinese drugmakers to fund late-stage drug development and global expansion. According to UBS Research, companies like Merck, GSK, and AstraZeneca signed a record USD 44.1 billion in biotech licensing deals last year. Western pharma companies are expanding their product pipelines as they face patent expirations of lucrative drugs. Meanwhile, Chinese drugmakers are struggling to raise funds domestically due to a stock market slump and a pricing regime overhaul that forces them to drop prices of innovative drugs.

The trend continues in 2024, with $9.8 billion in deals in the first quarter. Most deals involve U.S. or European companies licensing Chinese-made drugs at low prices, providing capital for further development, clinical trials, and commercialization. Some deals also include rights to sell within China.

China Piles USD 47.5 Billion Into ‘Big Fund III’ to Boost Chip Development (link)

China is pumping another 344 billion yuan ($47.5 billion) into a state-backed semiconductor industry investment fund to drive its chip industry development amid an escalating technology race with the United States. The initial phase of the fund was set up in 2014 with capital amounting to 138.7 billion yuan from deep-pocketed state investors. The second phase raised 204 billion yuan in 2019.

Over the years, the Big Fund has built up a sprawling portfolio through direct and indirect investments, backing the growth of industry leaders such as Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor Ltd. “The Big Fund III should target critical bottlenecks in the semiconductor industry rather than mature sectors. It should focus on long-term, patient investments to promote industry growth,” one investor said.

Huawei patent reveals 3nm-class process technology plans — China continues to move forward despite US sanctions (link)

When Huawei and Semiconductor Manufacturing International Co. (SMIC) patented self-aligned quadruple patterning (SAQP) lithography methods to produce advanced microchips earlier this year, most assumed the companies were working on building chips using their 5nm-class fabrication process. Huawei is now looking to use quadruple patterning for 3nm-class manufacturing technology. Industry experts never envisioned the use of quadruple patterning for 3nm-class nodes.

Although the cost per 5nm or 3nm chip using SAQP will almost certainly be higher, making it less feasible for commercial devices, the method remains vital for China's advancements in semiconductor technology. SAQP is crucial for Huawei and SMIC as they lack access to leading-edge lithography tools from ASML due to export rules imposed by the Netherlands.

🎁 Bonus Stories

Only 14% of high-income households that traveled internationally last year plan to go abroad again in 2024, according to a survey released this month by consulting firm Oliver Wyman. The segment covers families in mainland China earning at least 30,000 yuan a month (USD 4,140, or about USD 50,000 a year).

The top reason for preferring their home country was “abundant domestic travel options,” the survey found, followed by “too costly” international travel. Travel booking site Trip.com said that in 2023, bookings for rural destinations in China grew by 2.6 times versus pre-pandemic levels. Chinese consumers are now placing greater emphasis on “emotional fulfillment,” prompting interest in personalized trips. A full recovery in international travel to 2019 levels likely won’t come until late 2025.

Guangdong and Jiangsu provinces lead China’s urbanization having the most cities with over 1 million people (link)

Almost two-thirds of the 1.4 billion Chinese population lives in an urban area. China’s Guangdong Province has 17 cities with a population of 1 million or more. It is also China’s most populous province, home to 127 million people. This makes it comparable to the size of Japan, the 12th most populous country in the world. Jiangsu, ranked fourth in population overall, is the only other province that has 10+ cities with a million or more inhabitants. Altogether, China has 105 cities with more than one million inhabitants. For comparison, India has 65, and the U.S. has nine.

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