driving the day
1. It’s baaaaaaaack
China’s long-awaited, partially forgotten Unreliable Entity List has returned.
History lesson: Companies placed o the United States Department of Commerce’sEntity List are subject to restrictions on buying US goods.After Huawei was placed on the list in May2019,the Ministry of Commerce (MofCom) vowed to draw up its own Unreliable Entities List (see May 31, 2019 Tip Sheet).
- But the list never materialized. Instead it just hung over the heads of US business like a bureaucratic sword of Damocles.
On Saturday, MofCom issued a set of provisions outlining key features of the Unreliable Entities List.
Foreign companies can end up on the list for:
- Endangering China’s national sovereignty, security, and development interests
- Violating market principles or taking discriminatory measures against Chinese entities or individuals
Companies on the list will face the following consequences:
- Being restricted or banned from trade with and/or investment in China
- Entry bans for key personnel
- Cancellation of work or residence permits for key personnel
Get smart:With the US sanctioning Chinese companies on seemingly daily basis, Chinese authorities are looking to build tools to retaliate.
Get smarter:Chinese authorities are hesitant to actually use the Unreliable Entity List. They are keen to attract more foreign investment – not scare away foreign companies.
2. Xi calls for industrial upgrading inHunan
Unlike last month’s inspection tour to Anhui when disaster relief was front and center (see August 24 Tip Sheet), this time Xi focused mainly on the economy.
At a meeting with the provincial leadership, Xi noted (CPC People):
- “At present and in the future, China’s development is still in an important period of strategic opportunity.”
- “It is necessary to accurately identify changes, respond scientifically, and take the initiative to seek change.”
How to do that?Xi wants more industrial upgrading:
- “The task is to build a highland of important advanced manufacturing industries, [promote] technological innovation with core competitiveness, and reform and open up the inland areas.”
He also called for efforts to:
- Promote the Rural Revitalization Strategy
- Continue fighting for ecological and environmental protection
- Adhere to people-centred development
Get smart: Having successfully beaten COVID-19, China’s leadership is now focused on medium-term challenges. Upgrading the economy is top of the to-do list, but how to achieve that is still a subject of heated debate.
3. What can you do for your country?
Whilein Hunan (see previous entry), Xi held yet another symposium on China’s 14th Five Year Plan (FYP).
At the meeting, Xi listened to the suggestions of local grassroots representatives (Xinhua 3):
- “10 primary-level representatives offered their suggestions on rural education, poverty alleviation through industrial support, and the development of micro and small businesses, among other aspects.”
The lucky ten were a mixed bunch, including:
- Small business owners
- County and village level officials
- A driver
- A lawyer
- A primary school headmaster
Xi asked the government to take their suggestions into account when drafting the 14th FYP.
- “More efforts should be made to improve weak links concerning people’s livelihood…so that the people will always have a stronger sense of fulfillment, happiness, and security.”
Get smart: There is more visibility on the progress of the upcoming FYP than during the drafting process five year ago.
4. Wang Yang tells Taiwan not to trust US
On Sunday, Wang Yang addressed the annual Straits Forum via video link.
Some context: Established in 2009, the forum brings together politicians, businessmen, and social organizations from Taiwan and the mainland. It is held in Xiamen, Fujian.
More context: This year’s forum was a bust before it even started after the Kuomintang delegation decided not to attend last week (see September 15 Tip Sheet).
Wang did not mince words (Straits Forum):
- “’Taiwan independence’ is a dead end…that will only bring to Taiwan risks that it cannot bear.”
Wang also warned against trusting the Trump administration:
- “In the eyes of certain external powers, Taiwan is nothing more than a ‘chess piece’ in a larger game with the mainland.”
Get smart: Cross-strait relations have deteriorated markedly over the past year – and look likely to only get worse.
The big question: As peaceful reunification of Taiwan with the mainland looks less and less possible, will the PRC be tempted to take the island by force?
5. Meanwhile, in a secret mountain lair
On Saturday, Vice Premier Liu He visited Mianyang Scitech City in Sichuan and joined an inter-ministerial meeting focused on developing the city.
Some context: Mianyang is China’s only national scitech city. Nestled in mountainous Sichuan, it has long served as an advanced military tech research hub and was the birthplace of China’s atomic bomb.
The vice premier was direct about Mianyang’s goals (Gov.cn):
- “[These are] to implement an innovation-driven strategy, with national defense at its foundation and civil-military fusion as its focus.”
- “And to shape an innovation hub for the Chengdu-Chongqing Economic Circle, while exploring a path toward a regional high-tech special economic zone.”
More context: Faced with an escalating tech war with the US, top leaders are laser-focused on homegrown innovation.
- Just last week, Xi Jinping convened top scientific advisors and visited advanced manufacturing facilities in Changsha (see September 18 Tip Sheet).
Get smart: Top leaders aren’t sure how much tech damage they can weather, so they’re making the rounds to find out.
Get smarter: Liu’s nod to civil-military fusion was meant for a domestic audience, but it won’t do anything to calm jitters abroad.
6. Industry and investors cannonball into the semiconductor pool
Investment in China’s semiconductor industry is reaching a fever pitch (21st Century Biz):
- “Ten years ago, when domestic semiconductor investors got together, they’d only fill one or two tables.”
- “Now, semiconductor company roadshows often draw 100 investment institutions.”
Where the money goes, so go industry and startups:
- “As of September 1, 9,335 Chinese companies have changed their business scope within the past 12 months to include semiconductor and integrated circuit-related businesses, an increase of 1.2 times over the same period last year.”
The rush is driven by a visible hand: Government support.
- Earlier in September, China announced plans to include language supporting semiconductor self-reliance in the 14th Five-Year Plan (see September 4 Tip Sheet).
But money alone can’t solve China’s dependence on foreign tech:
- “[M]ore than 70% of the enterprises pouring into the semiconductor field are focused on downstream segments such as chip design (65%), manufacturing (17%), and packaging (10%); and not so much on equipment and materials (4%).“
Get smart: From solar panels to industrial robots, we’ve seen this movie before. A flood of government money into chips will leadto a fragmented industry and massive overcapacity.