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Daily Archives: August 19, 2022

Chart: U.S. Velocity of Money Rose After Multi-year Collapse

Source : Bloomberg

Chart: EU Natural Gas Soars to Record High

Source : Bloomberg

World Bank: China Economic Update – First Half 2022

China’s economy is projected to slow in 2022. After a strong start in early 2022, the largest COVID-19 wave in two years has disrupted China’s growth normalization. We project real GDP growth to slow sharply to 4.3 percent in 2022 – 0.8 percentage points lower than projected in the December China Economic Update. This downward revision largely reflects the economic damage caused by Omicron outbreaks and the prolonged lockdowns in parts of China from March to May. Growth momentum is expected to rebound in the second half of 2022, helped by aggressive policy stimulus to mitigate the economic downturn.

Risks to China’s growth are unevenly balanced and downside risks prevail. The reemergence of new, highly transmittable variants of COVID-19 could lead to more prolonged economic disruptions. As highlighted in the special topic of this edition of the China Economic Update, risks could also stem from persistent stress in the real estate sector with wider economy-wide consequences. China’s economy is also vulnerable to risks related to the global outlook. On the upside, if the pandemic is brought under control and domestic restrictions are fully lifted, full year growth could be higher than currently projected, thanks to the recently announced additional stimulus measures.

In the short term, China faces the dual challenge of balancing COVID-19 mitigation with supporting economic growth. The government has stepped up macroeconomic policy easing with large public spending, tax rebates, policy rate cuts, and a more dovish stance on the property sector. While China has the macroeconomic space to counter the growth slowdown, the dilemma facing decision-makers is how to make the policy stimulus effective, as long as mobility restrictions persist. Recurrent COVID-19 outbreaks are adding to economic uncertainty, weighing on private investment and consumption and reducing the effectiveness of policy measures.

There is a danger that China remains tied to the old playbook of boosting growth through debt-financed infrastructure and real estate investment. Such a growth model is ultimately unsustainable and the indebtedness of many corporates and local governments is already too high. Instead, policymakers could shift more of the stimulus onto the balance sheet of the central government and direct public investment towards the greening of public infrastructure. Fiscal support could also target measures to encourage consumption directly, for example, through the wider use of consumption vouchers. This could lift consumer spending in the short term in locations where COVID-related restrictions have been lifted. Decisive action to encourage a shift toward consumption, tackle social inequality, and rekindle innovation and productivity growth—including in technologies vital for China’s dual carbon goals—would help achieve a more balanced, inclusive, and sustainable growth trajectory for China.

Source : World Bank

Read more at Reuters

China’s economic wobbles worsen as factory, property woes mount . . . . .

Chuckles of the Day

Our Lawn Mower Broke, What Could I Do?

When our lawn mower broke and wouldn’t run, my wife kept hinting to me that I should get it fixed. But, somehow I always had something else to take care of first, the truck, the car, playing golf – always something more important to me.

Finally she thought of a clever way to make her point.

When I arrived home one day, I found her seated in the tall grass, busily snipping away with a tiny pair of sewing scissors. I watched silently for a short time and then went into the house.

I was gone only a minute, and when I came out again I handed her a toothbrush.

I said, “When you finish cutting the grass, you might as well sweep the driveway.”

(Wait for it)



(Just a little more)

The doctors say I will walk again, but I will always have a limp. (Ba Da Bing)

* * * * * * *

Life through the eyes of a child

A woman was trying hard to get the ketchup out of the jar. During her struggle the phone rang so she asked her 4-year-old daughter Amanda to answer the phone. And kids view the world differently sometimes. Literally. She answered the phone obediently, “Hello, this is Amanda. Mommy can’t come to the phone to talk to you right now. She’s hitting the bottle.”

A little boy got lost at the YMCA and found himself in the women’s locker room. When he was spotted, the room burst into shrieks, with ladies grabbing towels and running for cover. The little boy watched in amazement and then asked, ‘What’s the matter, haven’t you ever seen a little kid before?’

Want That Pill to Work Fast? Your Body Position Matters

If you need to take a pill, you might want to take it lying down — on your right side, that is.

Researchers studying how body positioning affects the absorption of pills found that one taken when a person was lying on the right side speeded pills to the deepest part of the stomach. That pill could then dissolve 2.3 times faster than if the person was upright.

“We were very surprised that posture had such an immense effect on the dissolution rate of a pill,” said senior author Rajat Mittal, a professor at Johns Hopkins Whiting School of Engineering and an expert in fluid dynamics. “I never thought about whether I was doing it right or wrong but now I’ll definitely think about it every time I take a pill.”

For the study, researchers used a model called StomachSim, which relies on physics, biomechanics and fluid mechanics to mimic what happens inside one’s gut as it digests food or medicine.

Researchers knew that most pills don’t start working until the stomach ejects its contents into the intestine. That would mean that a pill landing in the last part of the stomach, an area called the antrum, would begin dissolving faster. It would also begin emptying its contents more quickly through the pylorus into the duodenum, the first part of the small intestine.

To land a pill there would require a posture that uses both gravity and the natural asymmetry of the stomach to its benefit.

In addition to the right side, the team tested taking pills on the left side, standing upright and lying straight back.

Surprisingly, a pill that dissolves in 10 minutes with a patient lying on his or her right side could take 23 minutes to dissolve in an upright posture and more than 100 minutes with the person on his or her left side. Lying straight back tied with standing upright in terms of pill dissolution.

“For elderly, sedentary or bedridden people, whether they’re turning to left or to the right can have a huge impact,” Mittal said in a Hopkins news release.

Lead author Jae Ho “Mike” Lee, a former postdoctoral researcher at Johns Hopkins, noted that even small changes in stomach conditions could significantly affect dissolution — when someone’s gut isn’t functioning at its best because of conditions such as diabetes and Parkinson’s syndrome, for example.

The impacts of posture and stomach disease were similar on drug dissolution.

“Posture itself has such a huge impact … it’s equivalent to somebody’s stomach having a very significant dysfunction as far as pill dissolution is concerned,” Mittal said.

Plans for future work include attempting to predict how changes in the biomechanics of the stomach affect how the body absorbs drugs.

The findings were recently published in the journal Physics of Fluids.

Source: HealthDay

China Shocks with Rate Cut As Data Show ‘Alarming’ Slowdown

China’s economic slowdown deepened in July due to a worsening property slump and continued coronavirus lockdowns, with an unexpected cut in interest rates unlikely to turn things around while those twin drags remain.

Retail sales, industrial output and investment all slowed and missed economists estimates in July. The surveyed jobless rate for those aged 16-24 climbed to 19.9 per cent, a record high and headache for the Communist Party as it gears up for a major congress in coming months that’s expected to give President Xi Jinping a precedent-defying third term in power.

“July’s economic data is very alarming,” said Raymond Yeung, Greater China economist at Australia & New Zealand Banking Group Ltd. “Authorities need to deliver a full-fledged support from property to Covid policy in order to arrest further economic decline.”

The data suggest a crisis of confidence among Chinese businesses and households, adding another threat to the world economy as global demand for everything from Apple iPhones to luxury goods take a knock. At the same time, a worsening property slump is being felt at home and abroad as commodity prices such as iron ore and copper plummet.

China’s bonds surged and the offshore yuan weakened as investors absorbed the disappointing data prints and surprise rate cut. A stock rally cooled across Asia, commodities tumbled and the dollar rose as the gloomy news spread across financial markets.

China’s leadership has ruled out large-scale stimulus and vowed to continue with its stringent COVID Zero policy, requiring authorities to shut down businesses and lock down the population when major outbreaks occur — as is the case now in the resort island of Hainan. That’s dimming the growth outlook for the rest of the year, which economists are downgrading further below 4 per cent.

Key Economic Indicators for July

  • Industrial production rose 3.8 per cent from a year ago, the National Bureau of Statistics said, lower than June’s 3.9 per cent and missing economists’ forecast of a 4.3 per cent increase
  • Retail sales growth slowed to 2.7 per cent in July, lower than economists’ projection of 4.9 per cent
  • Fixed-asset investment gained 5.7 per cent in the first seven months of the year, also worse than the 6.2 per cent projected by economists. Property investment contracted 6.4 per cent in the period
  • The surveyed jobless rate fell to 5.4 per cent from 5.5 per cent, while the youth unemployment rate hit a record 20 per cent

China’s central bank cut both one-year and seven-day lending rates by 10 basis points, a move economists said would have little impact since Covid controls have made households and businesses reluctant to borrow. New credit in July increased at the slowest pace since at least 2017.

“The rate cut shows the entire economy is in trouble,” said Iris Pang of ING Groep NV. A wave of mortgage boycotts by households over incomplete projects has made households nervous about buying homes, reducing the impact of lower mortgage rates, she added.

The economy’s slowdown — which began in March as authorities in dozens of cities imposed lockdowns to control Covid outbreaks — has spilled over to major economies such as Germany and South Korea as China’s demand for manufactured goods slumps.

Nomura Holdings Inc. said growth in the second half will be significantly hindered by the Covid Zero policy, the downward spiral of the property market, and a likely slowdown in exports as the global economy weakens.

“Beijing’s policy support could be too little, too late and too inefficient,” the economists led by Lu Ting wrote in a note. “We think markets are too optimistic about growth in the second half, and we expect a new round of cuts of growth forecasts in coming weeks.”

Xi and the Communist Party’s top leaders gave a downbeat assessment of economic growth but didn’t announce new stimulus policies at a key policy meeting in July. The leadership has privately acknowledged the country’s annual growth target of about 5.5% is not achievable.

Chen Long, an economist at Beijing-based consultancy Plenum, said Chinese authorities are trying to do something they haven’t managed in more than two decades: revive the economy without relying on a property boom.

“Beijing has to ease a lot more if they’re serious about driving a new credit cycle,” he said.

So far, policy makers have refrained from a large-scale bailout for property developers and repeated hawkish language against speculation in the sector. Liu Peiqian, chief China economist at NatWest Group Plc, said “more substantial easing on the property sector” and a relaxing Covid policies were needed to improve sentiment.

Xi and other top officials are expected to be gathering at a beachside resort near Beijing for an annual retreat, making any near-term announcement of stimulus policies unlikely. Discussions are likely to be dominated by personnel changes at the upcoming Communist Party congress.

What Bloomberg’s Economists Say…

“The sharp downside surprise in China’s July activity shows the economy lost momentum after only a brief reopening-driven rebound in June.”

“The most surprising development was a slowdown in investment — suggesting a heavier-than-expected drag from the property market turmoil. Coming after extremely weak credit for July, the figures support the People’s Bank of China’s decision to cut rates — and we don’t think the central bank is done yet.” – Chang Shu, chief Asia economist

Beijing’s attempts to boost the economy has centered on encouraging local governments to borrow to fund infrastructure. Those efforts saw some success in July, but the scale of investment wasn’t enough to compensate for the sharp decline in housing investment.

The housing slump worsened in July, with sales falling more than 28% on-year and prices declining for an 11th consecutive month. That is rippling through China’s industrial sector, with monthly steel production in July reaching the lowest since 2018.

One bright spot in the data was strong growth in car production and sales after cuts to purchase taxes. China’s exports were also strong in July, defying expectations of a slowdown.

There were several data points though that had implications for China’s long-term growth, including high youth unemployment. Foreign companies, which are taking a bigger hit to profits than their Chinese peers, reduced investment on new projects by more than 4% in the first seven months of the year compared with a year earlier.

Chinese local governments have issued most of the bonds they were allocated to use for infrastructure spending, leading some economists to warn of a “policy cliff” before the end of the year unless more borrowing is announced. Even though Beijing has hinted that additional bonds could be approved, it hasn’t provided any specifics yet.

“The path of economic recovery in the second half will be bumpy and uncertain, depending on Covid and related policies, developments in the property market, and strength of external growth,” UBS AG economists led by Wang Tao wrote in a note. “Given the subdued July growth, our current below-consensus growth forecast faces some downside risks.”

Source : BNN Bloomberg

Musical Tests Can Detect Mental Deterioration in Old Age

Researchers at Tel Aviv University have developed a method that employs musical tests and a portable instrument for measuring brain activity to detect cognitive decline in old age. According to the researchers, the method, which is based on the measurement of 15 minutes of electrical activity in the brain while performing simple musical tasks, can be easily implemented by any staff member in any clinic, without requiring special training.

The researchers: “Our method enables routine monitoring and early detection of cognitive decline in order to provide treatment and prevent rapid, severe deterioration. Prophylactic tests of this kind are commonly accepted for a variety of physiological problems such as diabetes, high blood pressure or breast cancer; however, to date no method has yet been developed to enable routine, accessible monitoring of the brain for cognitive issues.” The researchers further note that tests of this kind are particularly important in light of increasing longevity and associated growth of the elderly population.

The study was led at Tel Aviv University by PhD student Neta Maimon from the School of Psychological Sciences and the Buchmann-Mehta School of Music, and Lior Molcho from Neurosteer Ltd, headed by Prof. Nathan Intrator from the Blavatnik School of Computer Science and the Sagol School of Neuroscience. Other participants included: Adi Sasson, Sarit Rabinowitz, and Noa Regev-Plotnick from the Dorot-Netanya Geriatric Medical Center. The article was published in the journal Frontiers in Aging Neuroscience.

As part of the study, the researchers developed a groundbreaking method combining a portable device for the measurement and innovative analysis of electroencephalography (EEG), developed by Neurosteer, and a short musical test of about 12-15 minutes, developed by Neta Maimon. During the test, the subject is connected to the portable EEG device by means of a adhesive band with only three electrodes attached to the forehead. The subject performs a series of musical-cognitive tasks according to audible instructions given automatically through earphones. The tasks include short melodies played by different instruments, with the subjects instructed to perform various tasks on them at varying levels of difficulty. For example, pressing a button each time any melody is played or pressing it only when the violin plays. In addition, the test includes several minutes of musically guided meditation designed to bring the brain to a resting state, as this state is known to indicate cerebral functioning in various situations.

Neta Maimon, who specializes in musical cognition, explains that music has great influence on different centers in the brain. On the one hand, music is known to be a quick mood stimulant, particularly of positive emotion. On the other hand, in different situations, music can be cognitively challenging, activating the frontal parts of the brain, especially if we try to concentrate on different aspects of the music, and at the same time perform a particular task.

According to Maimon, if we combine these two capabilities, we can create cognitive tests that are quite complex, yet also pleasant and easy to perform. Furthermore, music that is positive and reasonably rhythmic will enhance concentration and performance of the task. Thus, for example, the famous “Mozart effect,” showing improved performance on intelligence tests after listening to Mozart’s music, actually has nothing to do with Mozart’s music, but rather the fact that music creates a positive mood and stimulates us to a state that is optimal for performing intelligence and creativity tests.

Accordingly, the researchers hypothesized that with musical tools, it would also be possible to challenge the subjects to an extent that would enable testing of the brain’s frontal activity as well as raising their spirits, thus enhancing their performance on the test while the overall experience is pleasant.

The study included an experiment at the Dorot-Netanya Geriatric Medical Center. Neta Maimon: “Anyone hospitalized at Dorot, or any other geriatric rehabilitation institution, undergoes a standard test called “mini-mental,” designed to evaluate their cognitive condition as a routine part of the intake process. The test is conducted by an occupational therapist specially trained for it, and includes a variety of tasks. For example, enumerating the days of the week or months of the year backwards. In this test, up to 30 points can be accrued. A high score indicates normal cognition.

The experiment included the testing of 50 elderly people hospitalized at Dorot who scored 18-30 on the mini-mental test, indicating various levels of cognitive functioning. The participants performed the musical-cognitive tasks, administered automatically. The EEG device registered the electrical activity in the brain during the activity, with the results analyzed using machine learning technology. This allowed mathematical indices to be identified that were precisely correlated with the mini-mental test scores; in other words, we obtained new neuro-markers (brain markers) that may stand alone as indices of the subject’s cognitive status.

Maimon adds: “We have actually succeeded in illustrating that music is indeed an effective tool for measuring brain activity. The brain activity and response times to tasks correlated to the subjects’ cerebral conditions (correlating to the mini-mental score assigned to them). More importantly, all those who underwent the experiment reported that, on the one hand, it challenged the brain, but on the other it was very pleasant to perform.”

The researchers conclude: “Our method enables the monitoring of cognitive capability and detection of cognitive decline already in the early stages. all by simple and accessible means, with a quick and easy test that can be conducted in any clinic. This method is of special importance today due to the increase in longevity and accelerated population growth, particularly among the elderly. Today, millions of people around the world already suffer or are liable to suffer soon from cognitive decline and its dire consequences, and their number will only increase in the coming decades. Our method could pave the way towards efficient cognitive monitoring of the general population, and thus detect cognitive decline in its early stages, when treatment and prevention of severe decline are possible. It is therefore expected to improve the quality of life of millions around the world.”

Keren Primor Cohen, CEO, Ramot at TAU: “We are pleased that a company based on a technology developed at TAU continues its collaboration on creative and multidisciplinary research. Ramot will continue to promote and invest in novel technologies, as well as help TAU researchers to maximize their research’s potential.”

Source: Science Daily

If Tech Transfers Didn’t Build China’s Chip Industry, What Did?

Li Yin wrote . . . . . . . . .

Last week, American President Joe Biden signed the CHIPS and Science Act into law, setting the stage for the United States government to hand out $52.7 billion in subsidies to chip manufacturers. The bill, which was presented by the White House as a way to “counter” China in the global race for advanced computing technology, bans any firms receiving funds under the Act from investing in advanced chip production capacity in China for a period of 10 years.

The underlying rationale for this provision can be traced at least in part to a decade-old myth surrounding the practice of “forced technology transfers.” Two influential White House reports produced and released by the Donald Trump administration lay out the argument in detail, accusing the Chinese government of leveraging market access to compel foreign companies to transfer advanced technologies to Chinese firms and claiming that the rise of China’s tech industry has been driven by these forced technology transfers. This, the Trump White House argued, justifies the use of export controls to cut off the access of leading Chinese firms to advanced American technologies.

Four years into the trade war, China’s high-tech sector remains resilient under the sanctions. Yet the CHIPS act suggests the myth of forced technology transfers as fundamental to Chinese growth continues to haunt U.S. policymaking. But in my new book, “China’s Drive for the Technology Frontier: Indigenous Innovation in the High-tech Industry,” I argue that, compared to the spotty record of China’s technology transfer policy, the real driver of China’s technological progress has been indigenous innovation, a process in which domestic firms innovate to solve problems and create products for the local market based on a mix of knowledge actively learned from advanced countries as well as from China’s own science and technology base.

Advanced semiconductors, or chips, are a critical technology and a “chokepoint” for the Chinese economy in the trade war. Although China’s history of fabricating semiconductors dates back to the 1960s, it was only after the 1978 economic reforms that the Chinese government made a concerted effort to establish a modern chip industry. In the more than four decades since, the Chinese chip industry has been through three phases of development: a period emphasizing foreign technology transfers (from the late 1970s to 1999); a period of globalization and embedding in global supply chains (2000-2014); and the current phase, characterized by the rise of indigenous innovation.

In the first phase of development, which most closely resembles the “forced technology transfer” stereotype, the Chinese government implemented an industry policy explicitly centered around “trading market for technology,” or TMFT. As the term suggests, the policy required foreign companies to introduce advanced technologies to China as a precondition for access to the vast and growing Chinese market. Deployed to great success in the automobile, telecommunications, and electronics industries, the TMFT requirement could be fulfilled through transferring complete sets of equipment or blueprints, training staff, and forming joint ventures with state-owned enterprises (SOEs).

In the chip industry, the key beneficiaries included two state-owned enterprises and four Sino-foreign joint ventures. While the operations of these firms laid a solid foundation for the future, it is important to note that none of them became the kind of globally competitive enterprise imagined by the Chinese state. Likewise, two of the most expensive state-sponsored technology transfer projects, Project 908 and Project 909, failed in their aim of fostering a vertically integrated “national champion” capable of competing in the global chip industry.

There were a variety of reasons the TMFT failed to achieve the desired results. To start, foreign partners lacked the incentives to transfer truly critical knowledge to a potential competitor, and thus core technologies were often inaccessible to Chinese managers and engineers. More critically, the SOEs at the time lacked strategic control, such as authority and capacity over crucial investment decisions, meaning they had little say in what technologies were to be transferred in the state’s negotiation with foreign firms.

For example, a manufacturer of discrete semiconductors for consumer electronics was tasked by Project 908 with using technology transfers from American telecommunications giant AT&T Lucent to make advanced communication chips. This type of gap between a firm with a weak technology base and the government’s ambitious technology transfer plans often led Chinese managers to cede practical control over projects to foreign partners with better knowledge of technology, management, and markets.

The establishment of Semiconductor Manufacturing International Corporation (SMIC) in 2000 marked the advent of the globalization era in China’s chip industry. Founded by a team of ethnic Chinese and overseas returnees with experience in Silicon Valley and Hsinchu, and with funds raised from leading venture capitalists and the Chinese government, SMIC brought to China the pure-play foundry business model, pioneered by the Taiwan Semiconductor Manufacturing Company (TSMC).

Separating extremely capital-intensive foundries from chip design, independent foundries like SMIC and TSMC serve a broad base of customers, from semiconductor design houses to integrated device manufacturers.

With orders and technology licensed from its overseas customers, as well as support from various levels of the Chinese government, SMIC quickly began catching up with industry leaders. Importantly, unlike the national champions of the previous era, SMIC had the freedom to pursue an independent strategy, which it used to build up massive economies of scale in foundries, seek supply chain partners, and compete for a share of the global market. In the mid-2000s, SMIC was briefly the world’s third largest pure-play foundry after TSMC and the United Microelectronics Corporation.

SMIC’s early success was built on embedding itself in the global value chain, but it soon ran into trouble when TSMC sued it for patent infringement and the theft of trade secrets in U.S. court. As part of the suit, SMIC exports to the United States — the company’s largest market — were blocked twice, in 2002 and 2006. Although the suit was eventually settled, the company’s growth never recovered.

Insufficient “patient” capital is also partly to blame. Chip foundries are notoriously capital intensive, and SMIC’s capital expenditures, a critical indicator of investment in production and technology, averaged $700 million between 2005 and 2013. For context, TSMC’s capital expenditure grew from $2 billion to $10 billion annually during the same period. By the beginning of the 2010s, the Chinese chip industry had lost momentum, and the production and technology gap between the leading firms in China and the rest of the world had widened.

The next phase of the Chinese chip industry wouldn’t begin until the establishment of the National Integrated Circuit Industry Investment Fund — commonly known as the Big Fund — in 2014. With an eye toward solving the industry’s capital problems, the Big Fund mobilized a large amount of capital for intensive investment. By the end of its first investment phase in 2018, the Big Fund had invested upwards of 100 billion yuan in the chip value chain, according to estimates, covering everything from design and fabrication to materials and equipment.

A major mandate of the Big Fund is to strengthen the weak links in the domestic semiconductor industry. The fund’s initial focus was chip fabrication. More recently, it has shifted investment to semiconductor equipment and materials as these fields have emerged as new chokepoints in Sino-American competition.

A defining characteristic of the indigenous innovation phase is not simply making chips smaller, but the innovation of higher-quality, lower-cost chips for the local market. By filling these niches, indigenous firms have been able to build profitable business capable of investing in the R&D needed to one day become industry leaders.

Two startups, the Yangtze Memory Technology Co. (YMTC) and ChangXin Memory Technologies (CXMT), have made breakthroughs in the indigenous production of memory chips, a market segment accounting for a third of China’s $400 billion in chip imports in 2021. YMTC has leveraged its innovative Xtacking technology to earn about a 5% share of worldwide NAND chip production, while CXMT has built on the technology and patent portfolio acquired from Qimonda AG, a bankrupted German DRAM maker, to manufacture DDR4 DRAM chips.

Although no longer reliant on forced technology transfers, the Chinese chip industry still depends on returnees and overseas talent for their engineering and management expertise, as well as technologies licensed or bought abroad. This has posed challenges: By 2019, SMIC made a breakthrough into 14-nanometer FinFET technology through indigenous research and development. Yet, U.S. government restrictions on the sale of advanced EUV lithography machines mean there are significant technological obstacles to SMIC developing cutting-edge sub-10 nanometer technologies.

Meanwhile, as recent corruption investigations indicate, large state funds are not always efficient allocators of capital. The Big Fund, which before the recent scandal was seen as conservative in its funding decisions, differs radically from the traditional East Asian model followed elsewhere, which relies on big banks and industrial conglomerates to channel funding into the semiconductor industry.

Nevertheless, while the U.S.-China trade war that broke out in 2018 has slowed China’s technological development in some spheres, it has also accelerated the process of indigenous innovation. Ultimately, this drive, rather than any sanctions, will determine the future of China’s chip industry.

Source : Sixth Tone