From Russia to China and much more
This week we start with the G7 before moving to US-led chaos in WTO. We then do a deep dive on the effectivity of sanctions on Russia before moving to chip making in China and the rest of the world.
G7 announcing new steps with the “frozen” Russian assets
G7 leaders are on the verge of finalizing a political agreement to announce a loan of approximately $50 billion, underpinned by a complex arrangement to provide Ukraine with additional financial aid secured by proceeds from the assets.
Efforts to leverage immobilized Russian assets have been ongoing for months. While the political deal is expected to be announced soon, some details will likely need further negotiation.
One critical technical issue to be resolved later is the distribution of risk among the allies.
The proceeds from the frozen assets in Europe are estimated to generate €3 billion to €5 billion annually, depending on interest rates and other variables.
Should the war conclude sooner and the assets become "re-mobilized" as part of a peace agreement with Russia, it remains unclear who would be responsible for repaying the original loan.
US leads chaos in WTO
In late April, for the 75th consecutive time, the United States blocked a routine motion at the World Trade Organization (WTO) aimed at filling vacancies on the panel responsible for resolving disputes among its members.
These continuous vetoes, despite their seemingly obscure nature, have effectively incapacitated the WTO for nearly five years.
Members found in violation of its rules can simply appeal the decision to a non-functional panel due to a lack of personnel.
The European Union, while ostensibly more supportive of free trade and committed to reducing greenhouse gas emissions than other major economies, is on the brink of imposing tariffs on Chinese electric vehicles.
In April, EU officials conducted a raid on a major Chinese security equipment manufacturer as part of an investigation into subsidies.
Meanwhile, the United States has recently imposed sanctions on over 300 entities, including some in China and Turkey, for their support of Russia’s armed forces.
How effective has been the sanctions on Russia
Sanctions on Russia are having minimal impact outside Western nations, merely rerouting business activities, according to the chair of Dubai’s main trading hub. In an interview with the Financial Times, he stated, "Trade continues flowing, it just flows in a different way."
Dubai is emerging as a beneficiary of US and European efforts to isolate Russia's economy, with oil traders relocating from Geneva to the UAE after Switzerland joined the sanctions against Moscow.
The Centre for Research on Energy and Clean Air (CREA), a Finnish energy think tank, reported that sanctions on Russian oil exports cost the Kremlin an estimated €34 billion in 2023, primarily due to the reduced price of Russian oil.
Protectionism has become a priority for politicians. Unfortunately, political decisions are being made that are not commercially viable for the global economy.
The UAE and the Gulf states have generally maintained a neutral stance, avoiding being overtly "pro-American or anti-China." However, this neutrality is increasingly challenging to uphold as the US pressures countries to take sides, he noted.
China’s latest action in chip making
China’s National Integrated Circuit Industry Investment Fund, known as the Big Fund, has launched the largest chip investment initiative in the country's history.
This move aims to establish an independent supply chain resilient to US trade restrictions.
Observing global competitors secure advanced American semiconductors, like Nvidia Corp.’s H100 GPU, which China cannot access, the new Big Fund III focuses on enabling China to develop and manufacture AI-capable semiconductors domestically.
China's strategic advantage lies in its ability to offer comprehensive support, including direct investments and tax incentives for leading domestic chip companies. Additionally, its managed economy affords it capabilities beyond those of competitors like the US.
Previously, China created two similar funds in the past decade, amassing a combined investment of around 300 billion yuan ($41 billion).
Shenzhen specializes in chip fabrication, Shanghai is known for manufacturing and equipment, and Beijing excels in chip design.
Given the current lack of venture capital interest in China, Beijing must increasingly fund major projects, including those by Semiconductor Manufacturing International Corp. and new fabs collaborating with Huawei.
Establishing an autonomous supply chain is a multifaceted challenge, requiring investment in all areas, from chip design software to alternative tooling and machinery. Many of these critical components are produced or designed by the US and its allies, such as the Netherlands and Japan, necessitating China's innovation to overcome this obstacle.
The continuous rise in demand of AI chips
The swift integration of artificial intelligence (AI) across consumer and business sectors is predicted to boost global AI semiconductor revenue by 33% in 2024.
Market research firm Gartner reports that revenue from manufacturers specializing in AI-specific processors is expected to surge by 32.8%, reaching $71.25 billion by the end of the year.
In data centers, AI chip adoption is projected to generate $21 billion in revenue for 2024, with a compound annual growth rate nearing 12%.
This figure could rise to $33 billion by 2028.
Gartner's research indicates that "AI PCs"—desktops and laptops equipped with AI-dedicated chips—will make up slightly over 20% of all new desktop and laptop sales globally this year.
By the end of 2026, it is anticipated that all enterprise PC purchases will be AI-enabled.
Furthermore, the automotive industry is expected to contribute $7.1 billion to AI chip revenue this year. This growth is fueled by the rising demand for advanced driver assistance systems and next-generation software features in vehicles.