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General in a word: chip suffocation

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(noun) The US campaign to stifle China’s deep-tech ambitions

2022 was the year that world politicians fully woke up to the critical importance of the computer chip industry to the global economy. They also realize how alarmingly dependent the major powers have become on the semiconductor hotspot and geopolitical flashpoint that is Taiwan. Governments are now pouring huge sums of money into the industry to restart chip production and restore “technological sovereignty”. To that end, China, the United States, the European Union, Japan and India have collectively promised $190 billion in subsidies over a decade, according to New Street Research.

In addition to boosting its chip manufacturing capacity, the United States is trying to stifle its main strategic rival: China. Since 2020, Washington has been tightening its “stranglehold” on Beijing, trying to deny the country access to its most advanced and sophisticated chips. Just as the United States smashed the global expansion plans of Chinese telecom equipment companies, Huawei and ZTE, it is now targeting the two chip manufacturers, SMIC and YMTC, to deny them access to critical technology. in October, Washington added sweeping export controls, It seeks to prevent China from obtaining or manufacturing advanced computer chips. One analyst compared the move to declaring war on China’s high-performance computing ambitions.

Washington’s aggressive stance will certainly delay, but probably will not hinder, China’s efforts to produce cutting-edge chips that support AI models. Beijing is already moving heaven and earth to strengthen its domestic manufacturing base. But the US moves are also putting pressure on allied countries, including South Korea and the Netherlands, which are important strategic players in the specialty semiconductor and chip equipment markets. Such countries are increasingly being forced to pick a color as the industry is divided between “blue” supply chains destined for the US and “red” supply chains for China.

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john.thornhill@ft.com

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Brazilian Haddad vows to ‘restore’ public accounts, Reuters

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© Reuters. From file: Former Brazilian president and presidential candidate Luiz Inácio Lula da Silva and Sao Paulo gubernatorial candidate Fernando Haddad respond during an election night meeting on the day of the Brazilian presidential run-off in Sao Paulo, Brazi.

BRASILIA (Reuters) – Brazil’s new Finance Minister Fernando Haddad said on Monday he will propose a new fiscal pillar in the first half of this year while leftist President Luiz Inacio Lula da Silva’s team works to “restore” public accounts.

“We’re not here for adventure,” he said, trying to allay market fears about Lula’s return.

Haddad, a former mayor of Sao Paulo, took office with the challenge of offering a credible fiscal framework after Congress passed a package that increases Brazil’s spending cap to boost social spending.

In his first speech in office, Haddad said that the government would not accept the “ridiculous” initial deficit projection of 220 billion riyals ($41.19 billion) in this year’s budget, indicating that it would work to reduce it.

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He pledged to fight inflation, and promised to send a proposal to Congress regarding a new fiscal pillar in the first half of the year in an effort to ensure the sustainability of the public debt.

But he did not mention Lula’s decision the day before to extend an expensive fuel tax exemption, in what some saw as a stunning political setback for the new minister.

Before taking office, Haddad stated that the measure – which has an annual impact of 52.9 billion riyals – would not be extended.

Speaking to reporters after the event, he said Lula had asked for an extension so that a decision could be taken on resuming fuel taxes once the new board of directors of state-owned oil company Petrobras is formed. Taxes boost federal revenue but hurt Lula’s popularity.

Haddad, a lawyer with a master’s degree in economics and a doctorate in philosophy, is viewed with suspicion by the market for fear of disorderly spending.

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He sought to allay those concerns on Monday, saying that fiscal and monetary policy coordination would “certainly” happen. Haddad said he would also try to democratize access to credit and create a more transparent tax system.

($1 = 5.3416 riyals)

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Halting China’s growth cannot be the goal of the West

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Do we want China to fail? This question was asked at a recent seminar I attended for Western policymakers and commentators.

The group was scrolling through a report for the coming year, when a member of our team asked why one of the risks listed for 2023 was a sharp slowdown in Chinese growth. “Isn’t that what we want to happen?” Asked.

It’s a fair question. After all, the US president has said repeatedly that he is willing to go to war with China to defend Taiwan. The European Union describes the country as “My device competitorBritain officially discusses calling China a “threat.” Surely, if you consider a country a threat and a competitor, wouldn’t you want to see its economy grow rapidly?

Or maybe you do. Those who believe that continued Chinese economic success is still in the interest of the West have reasonable arguments to make. First, China is a large part of the global economy. If you want China to go into recession, you are very close to wanting the world to also go into recession. And if China is going to collapse – for example, if it is Real estate sector Melts – the consequences will bounce back through the global financial system.

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Then there is the ethical question. Are you comfortable with the desire of more than 1.4 billion Chinese – many of whom are still poor – to become even poorer? Demand and investment from China is critical to countries in Africa and the Americas. Do you want them to get poorer too?

The fact that such a debate is taking place at all says something about the current confusion in Western capitals. Broadly speaking, two models of world order are locked in a battle in the minds of Western policymakers: an old model based on globalization; and new ones based on great power competition.

The old model stresses economics and what the Chinese call “win-win cooperation.” Its argument is that economic stability and growth are good for all – and they also encourage beneficial habits of international cooperation on critical issues such as climate change.

The new paradigm argues that a richer China has, unfortunately, morphed into a more menacing China. Beijing has poured money into a military buildup and has territorial ambitions that threaten Taiwan, India, Japan, the Philippines and more. This view argues that unless China’s ambitions are changed or curbed, global peace and prosperity will be threatened. Russia’s assault on Ukraine, and the close alliance between China under Xi Jinping and Russia under Vladimir Putin, has reinforced the view that the best lens through which to view the world is now one that focuses on great power competition.

Unfortunately, this is not an argument that can be resolved because both worldviews contain elements of truth. China’s failure could pose a threat to world stability. So is the China that succeeds — as long as it’s run by Xi, or some other nationalist authoritarian.

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The way for Western policymakers to resolve this debate is to ask a different kind of question. Les: Do we want China to succeed or fail? But how do we manage China’s continued rise?

Asking the question in this way avoids basing politics on something outside the control of Western officials. It would be unwise for Americans or Europeans to assume that China is heading for failure, any more than it would be more realistic for China to base its policies on America on the idea that the United States might collapse. It is clear that both China and America are facing a lot of internal issues challenges It can – at worst – confuse them. But it would be foolish for either side to assume that outcome.

Rather than trying to make China poorer or thwart the country’s development, Western policy should focus on the international environment, in which a richer and more powerful China would emerge. The goal should be to shape a world order that makes aggressive policies less attractive to China.

This approach has military, technological, economic and diplomatic components. The United States has been most effective in strengthening its network of security relations with countries such as Japan, India and Australia – which would help deter Chinese militarism. Washington’s efforts to prevent China from becoming the world’s technology standard-setter is gaining momentum — but it will be more difficult to coordinate with allies, who fear for their economic interests.

Economy and trade are the weakest of the United States. China is already the largest trading partner for most countries in the Indo-Pacific region. America’s increasingly protectionist mood, and the inability to sign significant new trade deals in Asia, makes Washington’s counteroffer seem less convincing than ever.

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The battle of ideas is also important. As the Ukraine war made clear, large parts of the world remain deeply suspicious of Western motives—even in opposition to Russia’s apparent war of aggression.

This is why it is so important for the United States and the European Union to be clear – to themselves and others – that their goal is not to prevent China from getting richer. It is to prevent China’s growing wealth from being used to threaten its neighbors or intimidate its trading partners. This policy has the advantage of being defensible and enforceable.

gideon.rachman@ft.com

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The Bank of Israel raises the main interest rate and seeks fiscal discipline from the new government, by Reuters

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© Reuters. Photo: The Bank of Israel building in Jerusalem on June 16, 2020. REUTERS/Ronen Zvulun

Written by Stephen Scheer and Ari Rabinowitz

JERUSALEM (Reuters) – The Bank of Israel raised its benchmark interest rate by half a point on Monday and is likely to continue its increases a bit more in the coming months, saying it seeks to curb inflation above 5%.

As expected, the central bank raised its key interest rate to a 14-year high of 3.75% from 3.25%. In April, policymakers started to hike the rate from 0.1% and have been aggressive through the front-loading process, but most analysts believe the tightening cycle is nearing completion.

Bank of Israel Governor Amir Yaron said monetary policy was already “restrictive” but expressed concerns about inflation, although it is lower than in most of the West. The labor market is tight and the new government is poised to spend heavily to fulfill coalition agreements.

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While economists at the central bank forecast the benchmark rate at 4% within a year – which would mean there would be another quarter-point increase – Yaron was unable to commit to that peak.

Speaking to reporters, he said the pace of increases will continue to be data driven. “We will not hesitate to raise interest rates further,” Yaron said, adding that he expected inflation to start to ease in the second quarter. “I think interest rates in general should remain at a high level.”

Despite the rate hikes, Israel’s annual inflation rate rose to a 14-year high of 5.3% in November from 5.1% in October – well above the government’s annual target range of 1%-3%, fueling anger. The year of the rising cost of living.

Central bank staff expect inflation to be 3% in 2024, and fall to 2% in 2024.

“We are determined to reduce the inflation rate and bring it back to the target range,” Yaron said.

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A new government of Benjamin Netanyahu, whose coalition partners have made huge budget demands, took power this week. Yaron warned of a sharp rise in the deficit and debt burden.

“It is important for the new government to act with the necessary responsibility with regard to fiscal policy” and on public sector salary agreements, he said. “It is important to remember that the Israeli economy cannot take for granted the high ratings of rating agencies and international financial institutions.”

The Israeli economy grew at an annual rate of 1.9% in the third quarter from the second quarter, slower than the 7.4% pace in the previous three months.

Growth is expected to be 2.8% in 2023, revised down from 3%, and 3.5% in 2024, according to the Bank of Israel’s updated forecast.

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