Why yes, this is relevant to my interests!
Nicholas Moran, AKA The Chieftain, reviews various movie tank scenes for technical accuracy. Fury and Saving Private Ryan both rank pretty high.
He also has good things to say about The Beast and Kelly’s Heroes, both of which are on our Saturday Night Movie Group to-watch list.
Remember the bank runs in China story after all those bank accounts in Hunan were frozen? I’ve been looking for signs of wider contagion amidst the Chinese banking sector, and mostly haven’t seen it. But I have seen a lot of other cracks appear in China’s overall economic system, so here’s a roundup.
A large crowd of angry Chinese bank depositors faced off with police Sunday in the city of Zhengzhou, and many were injured as they were taken away, amid the freezing of their deposits by some rural-based banks.
The banks froze millions of dollars worth of deposits in April, telling customers they were upgrading their internal systems. The banks have not issued any communication on the matter since, depositors said.
According to Chinese media the frozen deposits across the various local banks could be worth up to $1.5 billion and authorities are investigating the three banks.
On Sunday, about 1,000 people gathered outside the Zhengzhou branch of China’s central bank on Sunday to demand action; they held up banners and chanted slogans on the wide steps of the entrance to a branch of China’s central bank in the city of Zhengzhou in Henan province, about 620 kilometers (380 miles) southwest of Beijing.
(Plus more on the property slump.)
A rapidly increasing number of “disgruntled Chinese homebuyers” are refusing to pay mortgages for unfinished construction projects, exacerbating the country’s real estate woes and stoking fears that the crisis will spread to the wider financial system as countless mortgages default.
According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.
And that was over a week ago.
According to Citi analysts, average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years. Meanwhile, it’s only getting worse as China’s home prices fell for a ninth month in May, with June figures set for release Friday.
The crisis engulfing Chinese developers is reaching a new phase, with a debt selloff expanding to firms once deemed safe from the cash crunch, including investment-grade names such as Country Garden Holdings, the largest builder by sales.
The payment refusals, which come at a time when China’s economy is set to post what may be a negative GDP print due to the latest economic shutdown over Xi’s catastrophic zero covid policies, underscore how the storm engulfing China’s property sector is now affecting hundreds of thousands of average citizens, posing a threat to social stability ahead of a Communist Party Congress later this year. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults.
As a result of the unprecedented push for a debt jubilee, shares of China’s banks extended their recent decline Thursday, with the CSI 300 Banks Index falling as much as 3.3% before closing down 2.2%. A Bloomberg Intelligence index of Chinese developer stocks slid as much as 2.7%, even though Chinese lenders were quick to try and dispel fears that the movement could crash the economy: according to Bank of Communications, its outstanding balance of overdue mortgage loans linked to housing projects with risks of delayed delivery is 99.8 million yuan, accounting for 0.0067% of its domestic housing mortgage balance. The bank added that its housing mortgage loan quality is stable and risks are controllable, the Shanghai-based lender says in an exchange filing. At the same time, Postal Savings Bank of China says its overdue mortgage loans linked to halted housing projects is 127m yuan, and risks are controllable. Of course, it’s not like Chinese banks would ever lie, now is it?
The Great Debt Jubilee is picking up speed: China’s homebuyer mortgage boycott, which prompted Beijing to scramble to avoid a potentially devastating crash in what is the world’s biggest asset is spreading, and according to Bloomberg, some suppliers to Chinese real estate developers are now also refusing to repay bank loans because of unpaid bills owed to them, a sign that the loan boycott that started with homebuyers is starting to spread.
In a jarring case study of what happens when a ponzi scheme goes into reverse, hundreds of contractors to the property industry complained that they can no longer afford to pay their own bills because developers including China Evergrande Group still owe them money, Caixin reported, citing a statement it received from a supplier Tuesday.
Similar to homebuyers who have taken a stand and refuse to pay for properties that remain uncompleted, one group of small businesses and suppliers circulated a letter online saying they will stop repaying debts after Evergrande’s cash crisis left them out of pocket.
“We decided to stop paying all loans and arrears, and advise our peers to decline any requests to be paid on credit or commercial bill,” the group said in the letter dated July 15, which was sent to the developer’s Hubei office. “Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply-chain crisis.”
As Bloomberg oh so perceptively puts it, “the payments protest is the latest sign of how a movement by homebuyers to boycott mortgages on unfinished homes in China is spreading to affect other sectors in the economy.”
Yes it is, and it’s also why Beijing should be freaking out (if it isn’t), because what is taking place in China is far worse than what took place in March 2020 when the global credit machinery ground to a halt, only back then it’s because there was no other option, now it’s a voluntary development and not even fears of reprisals from China’s ruthless, authoritarian, Lebron-beloved dictatorship is stopping millions of people from calling for a systemic boycott, one which can topple China’s entire $60 trillion financial system in moments.
Probably an overstatement, just because it takes a whole lot to overcome the inertia of the average Chinese citizen just wanting to keep their head down and not be the nail that sticks up.
Embattled Chinese real estate giant Evergrande is expected to deliver a preliminary restructuring plan this week, following the exit of two bosses.
The firm says its chief executive and finance head have resigned, after an internal probe found that they misused around $2bn (£1.7bn) in loans.
Chinese businessmen misusing funds? Try to contain your shock.
Evergrande has more than $300bn in liabilities and defaulted on its debts late last year.
The crisis has spooked traders who fear contagion in China’s property sector.
On Friday, Evergrande said it found that chief executive Xia Haijun and chief financial officer Pan Darong were involved in diverting 13.4bn yuan ($2bn; £1.7bn) in loans secured by its property services unit to the wider group.
The firm said in a filing to the Hong Kong Stock Exchange that Mr Xia and Mr Pan had resigned because of their “involvement in the arrangement of the pledges”.
Getting caught trying to cook the books even after it’s hit the fan. Classic Chinese management.
The U.S. Securities and Exchange Commission has started the process, compelled by a 2020 law, and investors have started to pay attention. So has China, which moved to potentially clear a big hurdle that stymied U.S. regulators for years.
1. Why does the U.S. want access to audits?
The 2002 Sarbanes-Oxley Act, enacted in the wake of the Enron Corp. accounting scandal, required that all public companies have their audits inspected by the U.S. Public Company Accounting Oversight Board. According to the SEC, more than 50 jurisdictions work with the board to allow the required inspections, while two historically have not: China and Hong Kong. The long-simmering issue morphed into a political one as tensions between Washington and Beijing ratcheted up during the administration of President Donald Trump. The Chinese chain Luckin Coffee Inc., which was listed on Nasdaq, was found to have intentionally fabricated a chunk of its 2019 revenue. The following year, in a rare bipartisan move, Congress moved to force action.
2. Where does it stand?
As required by the law, known as the Holding Foreign Companies Accountable Act or HFCAA, the SEC in March started publishing its “provisional list” of companies identified as running afoul of the requirements. While the move had long been telegraphed, the first batch of names fueled a sharp decline in U.S. shares of companies based in China and Hong Kong as it dashed hopes for some kind of compromise. In all, the PCAOB has said it’s blocked from reviewing the audits of more than 200 of those businesses. The companies say Chinese national security law prohibits them from turning over audit papers to U.S. regulators. SEC Chair Gary Gensler said in late March that the Chinese authorities faced “a hard set of choices.” Days later, China announced it would modify a 2009 rule that restricted the sharing of financial data by offshore-listed firms, potentially clearing one obstacle.
3. What is China changing?
The China Securities Regulatory Commission said the requirement that on-site inspections should be mainly conducted by Chinese regulatory agencies or rely on their inspection results would be removed. It said it would provide assistance for cooperation with foreign regulators. The CSRC said it’s rare in practice that companies need to provide documents containing confidential and sensitive information. However, if required during the auditing process, they must obtain approvals in accordance with related laws and regulations.
4. What’s the broader issue?
Critics say Chinese companies enjoy the trading privileges of a market economy — including access to U.S. stock exchanges — while receiving government support and operating in an opaque system. In addition to inspecting audits, the HFCAA requires foreign companies to disclose if they’re controlled by a government. The SEC is also demanding that investors receive more information about the structure and risks associated with shell companies — known as variable interest entities, or VIEs — that Chinese companies use to list shares in New York. Since July 2021, the SEC has refused to greenlight new listings. Gensler has said more than 250 companies already trading will face similar requirements.
5. How soon could Chinese companies be delisted?
Nothing is going to happen this year or even in 2023, which explains why markets initially took the possibility in their stride. Under the HFCAA, a company would be delisted only after three consecutive years of non-compliance with audit inspections. It could return by certifying that it had retained a registered public accounting firm approved by the SEC.
6. How many companies will be affected?
There’s not much discretion. If a company from China or Hong Kong trades in the U.S. and files an annual report, it will soon find itself on the SEC’s list simply because those have been identified as non-compliant jurisdictions. In the March interview, Gensler pointed out that the law focuses on non-compliant countries, rather than specific companies.
“Demographically they’re in collapse…China’s not even going to survive this decade. They don’t even have the numbers to try…China doesn’t have the naval capacity to secure markets and resources….Xi Jinping has enacted a cult of personality that is tighter than anything that has existed through Chinese history. It’s gotten so tight that no one wants to bring him information about anything…This is how countries die.” Plus: China doesn’t know how to store grain.
The widely acclaimed globalization of the post-Cold War era is now running in reverse. A protracted slowdown in global trade has been reinforced by persistent pandemic-related supply-chain disruptions, ongoing pressures of the US-China trade war, and efforts to align cross-border economic ties with geostrategic alliances (“friend-shoring”). These developments tighten the noose on China, arguably the country that has been the greatest beneficiary of modern globalization.
Of the many metrics of globalization, including financial, information, and labor flows, the cross-border exchange of goods and services is most closely tied to economic growth. Largely for that reason, the slowdown in global trade, which commenced in the aftermath of the 2008-09 global financial crisis and intensified in the COVID-19 era, points to a sea change in globalization. While global exports went from 19% of world GDP in 1990 to a peak of 31% in 2008, in the thirteen years that followed (2009-21), global exports have averaged just 28.7% of world GDP. Had world exports expanded on a 6.4% trajectory – halfway between the blistering 9.4% pace of 1990-2008 and the subdued post-2008 rate of 3.3% – the export share of global GDP would have soared to 46% by 2021, far above the actual share of 29%.
China’s gains from the globalization of trade have been extraordinary. In the decade prior to China’s 2001 accession to the World Trade Organization, Chinese exports averaged just 2% of total world exports. By 2008, that share had risen nearly fourfold, to 7.5%. China had timed its WTO membership bid perfectly, just when the global trade cycle was on a major upswing. While the financial crisis took a brief toll on Chinese export momentum, the interruption was short-lived. By 2021, Chinese exports had surged to 12.7% of world exports, well above the pre-2008 peak.
China is unlikely to maintain this performance. Overall growth of global trade is slowing, and China’s slice of the trade pie is under mounting pressure.
The ongoing trade war with the United States is especially problematic. During the first phase of China’s export-led growth surge in the aftermath of WTO accession, the US was consistently China’s largest source of external demand. Largely due to former US President Donald Trump’s tariffs, that is no longer the case. By 2020, US imports of Chinese goods and services had fallen 19% below the peak levels of 2018. Despite rebounding sharply on the heels of the US economy’s post-pandemic snapback, in 2021, US imports from China remained 5% below the 2018 peak. Partial tariff rollbacks for selected consumer products, which President Joe Biden’s administration is apparently considering as an anti-inflation gambit, are unlikely to jump-start bilateral trade.
At the same time, enduring pandemic-related supply-chain disruptions are likely to take a sharp toll on China and the rest of the world.Over the six months ending in April, a “global supply chain pressures index” constructed by researchers at the Federal Reserve Bank of New York averaged 3.6, well above the 2.3 reading in the first 21 months following the February 2020 onset of pandemic-related lockdowns, and sharply higher than the “zero” reading associated with the absence of supply-chain disruptions.
This is a big deal for a world connected by supply chains. Global value chains accounted for more than 70% of the cumulative growth in overall global trade from 1993 to 2013, and China has enjoyed an outsize share of this GVC-enabled expansion. As supply-chain disruptions persist, exacerbated by China’s zero-COVID policies, pressures on Chinese and global economic activity are likely to remain intense.
Mounting geostrategic tensions are the wild card in deglobalization, especially their implications for China. “Friend-shoring” in effect turns Ricardo’s efficiency calculus of cross-border trade into an assessment of the security benefits that come from strategic alliances with like-minded countries. China’s new unlimited partnership with Russia looms especially relevant in this regard. With China edging closer to crossing the line by providing support to Russian military efforts in Ukraine, the US has recently moved to impose sanctions on five more Chinese companies through its so-called Entity List.
No doubt I’ve missed many other examples of cracks in China’s economic edifice. Feel free to share them in the comments below.
Going to the dentist always makes me tired, and I already wasn’t feeling up to any intellectual heavy lifting today, so instead let’s turn to one of the laziest of lazy blogger tropes: Talking about the weather.
I don’t know if you’ve heard, but it’s hot around these parts.
With Austin on the verge of wrapping up its warmest July on record, Mother Nature appears to be assembling the ingredients for the city’s hottest summer ever.
Austin’s average temperature in July as of Sunday was 90.7 degrees, which is not only 5.2 degrees higher than normal but also a full degree warmer than the July record set in 2011, the year drawing the most comparisons to our blistering summer.
The historic weather of 2011 bore memorable disasters and set a benchmark for drought and heat records for Central Texas, including:
90 days of 100-degree weather, a record that holds up to this day — but could be broken this year. The Bastrop Complex Fire, which started in September and burned 34,000 acres and 1,600 homes in central Bastrop County about 30 miles east of Austin, becoming the most destructive fire in Texas history. Austin’s warmest year ever with an average temperature of 72 degrees. Six years later, 2017 became the warmest year, but only by a tenth of a degree. A drought that reached record levels across the state in 2011, according to data from the U.S. Drought Monitor, a joint effort of the National Drought Mitigation Center, the U.S. Agriculture Department and the National Oceanic and Atmospheric Administration. Exceptional drought — the drought monitor’s most severe level, typified by crop loss and extreme sensitivity to fire danger — had spread to as much 87.8% of Texas in mid-September and 88% in early October that year.
It’s not the hottest temperatures we’ve had on record: In September of 2000, it hit 112°. In 2011, we had the worst drought in recorded history. So maybe we’re just in the “Every 11 years Austin gets really screwed” cycle.
And we’re not even having the worst of it. Drought has Lake Mead at record lows. (Evidently China has gotten all our rain and is suffering record floods.)
We’re used to 100° summer days, we’re just not used to so many above 100° days in a row. A certain sense of lassitude slips in.
Still, we soldier on. Dogs still get walked three times a day, and I did my usual Sunday bike ride, since it was only 100°.
But expect some lazy blogging days.
Amid fears of worldwide food shortages due to the Russo-Ukrainian war, Russia and Ukraine signed an agreement to reopen sea corridors to allow food exports from the Ukrainian port of Odessa to recommence.
Then Russia hit Odessa with missiles.
World leaders swiftly condemned the Russian missile strike on a Ukrainian port, a dramatic revelation amid a U.N.-brokered deal that secured a sea corridor for grains and other foodstuff exports.
A day prior, representatives from the U.N., Turkey, Russia and Ukraine signed an agreement to reopen three Ukrainian ports, an apparent breakthrough as the Kremlin’s war on its ex-Soviet neighbor marches into its fifth month.
The deal, signed in Istanbul and set to be implemented in the next few weeks, follows a months-long blockade of dozens of Ukrainian ports sprinkled along the Sea of Azov and the Black Sea.
The strike on Odesa, Ukraine’s largest port, illustrates yet another anxious turn in fruitless efforts to mitigate a mounting global food crisis.
Given how many agreements and treaties Putin violated by occupying parts of Ukraine and then launching the current war, there’s no reason to believe that Putin will adhere to the terms of any agreement.
The path to lasting peace in Ukraine is complete destruction and ejection of invading Russian forces.
The title overstates the case, but this story of the red-tape cutting, round-the clock efforts to field a bunker busting bomb during the Gulf War is fascinating stuff.
(Today has been a bear for a variety of uninteresting reasons, so no LinkSwarm today. Hopefully tomorrow…)
If you’re wondering whether a true sea-change in the way America thinks about marijuana legalization, Republican Texas Agriculture Commissioner Sid Miller coming out for medical marijuana is an interesting signpost.
Miller likened regulation of medical marijuana to national prohibition of alcohol in the U.S. from 1920-1933.
“The history of cannabis prohibition reflects the failed alcohol prohibition of the 1920’s. Complete with gangs, corruption, and widespread violence against the lives and liberties of American citizens,” Miller wrote.
“As I look back, I believe that cannabis prohibition came from a place of fear, not from medical science or the analysis of social harm. Sadly, the roots of this came from a history of racism, classism, and a large central government with an authoritarian desire to control others. It is as anti-American in its origins as could be imaginable,” he continued.
Keep in mind the Miller is hardly Rand Paul on the conservative-to-libertarian spectrum, with tons of cultural conservative endorsements over the years. The fact he’s willing to talk about the issue in a year he’s up for reelection indicates that it’s far from a forbidden notion on the right.
In 2015, Texas passed the Compassionate-Use Act, which allowed for the prescription of low-THC cannabis to patients with intractable epilepsy. It was later expanded to include patients with autism, seizure disorder, cancer, post-traumatic stress disorder and a number of other conditions.
Miller said he wants to make medical marijuana available to all Texans “who are suffering.”
“I worked diligently to bring hemp farming to Texas and supported the development of products such as hemp oil for medical use. These products are making a difference in the lives of many where other medicines have failed,” Miller wrote. “It is my goal next year to expand access to the compassionate use of cannabis products in Texas so that every Texan with a medical need has access to these medicines.”
Caveat: Miller isn’t for full legalization.
Despite the move by several states, including Colorado and Nevada, Miller is not in favor of recreational marijuana being legalized in Texas, writing, “Eighteen states, including conservative western states like Arizona, Montana, and Alaska, have legalized commercial cannabis sales to ALL adults. While I am not sure that Texas is ready to go that far, I have seen firsthand the value of cannabis as medicine to so many Texans.”
I’m in the “remove federal prohibition (on Tenth Amendment grounds), then let each state vote on legalizing, regulating and taxing it” camp. While I might vote for that, I suspect a small majority of Texas voters might still reject outright legalization. But I suspect actual legalization of marijuana (and not the dishonest “you want legal” dispensary scheme some states instituted) might well pass.
In any case, if the Republican Agriculture Commissioner of Texas can come out for marijuana legalization, you know it’s no longer the third rail it once was.
In an attempt to subvert the Supreme Court’s clear directions in the Bruen decision, California’s gun grabbing Democrats have actually made their case weaker through their own arguments. Armed Scholar Anthony Miranda:
Some takeaways:
It would be nice if the citizens of California could enjoy the Second Amendment rights enjoyed by American citizens in the overwhelming majority of the other 49 states…
Sometimes actual justice wins:
After intense backlash from local bodega workers and city tabloids, Manhattan district attorney Alvin Bragg on Tuesday dropped all charges against bodega clerk Jose Alba, who was allegedly acting in self-defense when he fatally stabbed a man who was attacking him.
The liberal DA’s decision comes after weeks of criticism of Bragg’s decision to send the 61-year-old to Riker’s Island and charge him with second-degree murder in the death of 35-year-old Austin Simon. Bragg first requested Alba’s bail be set at $500,000 before it was lowered to $50,000 in response to criticism from the community. He was later released on a $5,000 bail bond.
Snip.
Bragg’s office said Tuesday that “a homicide case against Alba could not be proven at trial beyond a reasonable doubt” after further investigation, according to the New York Times.
This is obviously the correct decision, but this was obviously justifiable self-defense from the very beginning, and that didn’t keep Soros-backed DA Alvin Bragg from charging Alba with murder in the first place. Indeed, chances are good that if it weren’t not for widespread outcry from other politicians (like Mayor Eric Adams), it’s quite possible that Alba would still be languishing in Riker’s Island awaiting trial.
The Defund The Police wing of the Democratic Party won’t give up their war on legal self-defense without a lot more fights.
Enough links have filtered into the semiconductor bucket to be worth doing a roundup. This one touches on China and the corruption of our political elites.
The Biden administration is laser-focused on sending Ukraine billions of dollars in weapons, including the latest round of anti-ship systems, artillery rockets, and rounds of 105 mm ammo for howitzer cannons that it has entirely lost focus on reshoring efforts to boost semiconductor production Stateside.
Multiple manufacturers of semiconductor wafers have announced plans for new multi-billion dollar factories across the U.S. but are contingent on Congress allocating funds to aid in building facilities under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act.
Congress passed the CHIPS Act in January 2021 as part of last year’s National Defense Authorization Act, which proposed $52 billion in funding for increasing the domestic capacity of chip production, though the House and Senate have come to a standstill over disagreements on certain parts of the bill that have sparked so much uncertainty among companies set to build new factories.
In a letter on June 15, dozens of technology executives from IBM, Intel, Microsoft, Analog Devices, Micron, Amazon, and Alphabet called on Congress to move quickly on the CHIPS Act. They wrote, “the rest of the world is not waiting for the U.S. to act,” and funding for new chip factories must be achieved immediately.
Taiwan’s GlobalWafers announced a new $5 billion factory in the U.S. on Monday, but contingent on subsidies from the federal government.
“This investment that they’re making is contingent upon Congress passing the CHIPS Act. The [GlobalWafers] CEO told me that herself, and they reiterated that today,” U.S. Commerce Secretary Gina Raimondo told CNBC, the same day GlobalWafers announced its development plan.
Notes:
So of the companies mentioned, Intel could suck up government funding to build a fab they were going to build anyway, I’m sure Analog Devices would build a fab with government money, but chances of them running an under 10nm process in said theoretical fab is extremely slim, none of the other mentioned copies are going to build a fab, and none of that government money is going to alleviate the main problem that the overwhelming majority of cutting edge chip designs have to flow through TSMC fabs in Taiwan. What will solve that problem is TSMC opening a state-of-the art fab in Arizona in 2024. No amount of U.S. taxpayer money will make that already-under-construction fab start producing chips any quicker.
As I’ve mentioned previously, semiconductor subsidies are the wrong solution to the wrong problem.
$250 billion in taxpayer subsidies wouldn’t get you a single additional wafer start this year, and probably would accomplish little more than channeling money to politically connected firms and sticky pockets in a state (New York) that no one wants to build fabs in any more because of high costs, high taxes and union rule requirements.
I bet you would.
This past week it hit the terminal that House Speaker Pelosi was doing a little portfolio re-jiggering, including exercising $8 million of call options in Nvidia and selling Apple and Visa calls. The data was per CongressTrading.com and was reported on by Bloomberg.
The Nvidia LEAPS were bought June 3, 2021 with $100 strikes, set to expire June 17, 2022 and the position appeared to be disclosed on Thursday morning for the first time. $8 million trades seem a little odd for members of Congress to begin with, but who are we to judge?
But then, what did Speaker Pelosi do just hours after disclosing the trade, on Friday?
She threw her weight behind a stalled $50 billion CHIPS PLUS bill that “would provide $52 billion in funding for semiconductor manufacturing grants and investment tax credits for the chip industry.”
We tend to discuss leading-edge nodes and the most advanced chips made using them, but there are thousands of chip designs developed years ago that are made using what are now mature process technologies that are still widely employed by the industry. On the execution side of matters, those chips still do their jobs as perfectly as the day the first chip was fabbed which is why product manufacturers keep building more and more using them. But on the manufacturing side of matters there’s a hard bottleneck to further growth: all of the capacity for old nodes that will ever be built has been built – and they won’t be building any more.
Not strictly true. Remember, Bosch just finished building a 65nm fab.
As a result, TSMC has recently begun strongly encouraging its customers on its oldest (and least dense) nodes to migrate some of their mature designs to its 28 nm-class process technologies.
Nowadays TSMC earns around 25% of its revenue by making hundreds of millions of chips using 40 nm and larger nodes. For other foundries, the share of revenue earned on mature process technologies is higher: UMC gets 80% of its revenue on 40 nm higher nodes, whereas 81.4% of SMIC’s revenue come from outdated processes.
That’s because UMC has fallen woefully far behind TSMC, and no one trusts them because they let Chinese spies walk out the door with other company’s IP. SMIC is on Mainland China, sucks even more, and is trusted even less.
Mature nodes are cheap, have high yields, and offer sufficient performance for simplistic devices like power management ICs (PMICs). But the cheap wafer prices for these nodes comes from the fact that they were once, long ago, leading-edge nodes themselves, and that their construction costs were paid off by the high prices that a cutting-edge process can fetch. Which is to say that there isn’t the profitability (or even the equipment) to build new capacity for such old nodes.
This is why TSMC’s plan to expand production capacity for mature and specialized nodes by 50% is focused on 28nm-capable fabs. As the final (viable) generation of TSMC’s classic, pre-FinFET manufacturing processes, 28nm is being positioned as the new sweet spot for producing simple, low-cost chips. And, in an effort to consolidate production of these chips around fewer and more widely available/expandable production lines, TSMC would like to get customers using old nodes on to the 28nm generation.
“We are not currently [expanding capacity for] the 40 nm node” said Kevin Zhang, senior vice president of business development at TSMC. “You build a fab, fab will not come online [until] two year or three years from now. So, you really need to think about where the future product is going, not where the product is today.”
Obviously, they already produce some of their own chips, but the video covers most of the issues China has with fabbing more complex chips that I’ve already discussed here and here. They’re still dependent on the same three leading fab companies (TSMC, Intel and Samsung) everyone else is for sub 10nm feature chips, and are overwhelmingly dependent on both foreign talent and foreign semiconductor equipment manufacturers like ASML and Applied Materials.