Sharp China with Bill Bishop

Episode: (Preview) ‘Moderately Loose’ and Cautiously Stimulating; Nvidia Under Investigation; Broadening Export Bans; A TikTok Verdict and a Trump Prayer

Date: December 11, 2024
Hosts: Andrew Sharp and Bill Bishop

Episode Overview

In this preview episode, Andrew Sharp and Bill Bishop discuss recent developments in US-China relations, focusing on China's antitrust investigation of Nvidia, the broader implications of the ongoing semiconductor trade war, and China's increasingly tough export controls, especially regarding critical minerals. The conversation delves into the strategies and possible motivations behind these actions, adding crucial context about how these moves fit into the larger dynamic as Donald Trump prepares to assume the US presidency.

Key Discussion Points and Insights

1. Updates on Chinese Defense Minister Dong Jun

• [00:33] Dong Jun met with foreign delegations in Shanghai, but lack of photos or video raises questions.
• Bill Bishop cautions against jumping to conclusions about Dong Jun’s status (i.e., under investigation or not), noting limited public evidence.

  “I think it would be risky to say he met with some foreigners… not actually have had it happen.”

• The broader point: In China’s high government positions, anxiety and insecurity remain high.

  “Hard to rest easy in a lot of positions these days.” (Bill Bishop, [01:45])

2. China’s Antitrust Probe into Nvidia

• [01:48] The Wall Street Journal reports China’s State Administration for Market Regulation (SAMR) has launched an antitrust investigation into Nvidia, specifically relating to its 2020 acquisition of Mellanox.
• This comes just one week after the US tightened semiconductor export controls to China, seen as a retaliatory move.
• Nvidia’s China revenue: $13.5 billion in the past four quarters (12% of global revenue).
• The investigation centers on whether Nvidia is violating bundling conditions imposed by SAMR as part of the Mellanox deal.

Regulatory Background and Precedent

• [03:38] Bill Bishop outlines that SAMR’s powers were significantly enhanced with an amended anti-monopoly law two years ago.
• He cites past major regulatory actions against companies such as Qualcomm (2015, nearly $1 billion fine) and Intel (prevented from buying Tower Semiconductor).
• Penalty potential: Fines could reach up to 10% of a company’s previous year’s revenue (uncertain if this is global or China-only).

Notable Quote – Regulatory Leverage

“It is not clear if that’s global or domestic revenue. But even if it’s just domestic… significant amount of money.”
(Bill Bishop, [04:12])

• [05:43] Nvidia is facing antitrust scrutiny not just in China, but also from the US Department of Justice. This shows the high-stakes, global nature of tech oversight.

“It does seem like it’s a pretty clear response to the chip controls and part of that ongoing story in terms of the leverage that both sides… have as we move forward here.”
(Andrew Sharp, [05:43])

3. US-China Semiconductor Wars: Loopholes and Strategic Risks

• [06:45] Andrew Sharp voices frustrations about the US chip controls:
  • The initial 2022 controls (implementing after PLA exercises in Taiwan Strait) gave national security side the upper hand.
  • But, [07:39] “the holes in that policy have become clearer and the Biden administration hasn’t been nearly as aggressive about patching any of those holes.”
  • Even after those PLA exercises became routine, policy fixes haven’t materialized.

Notable Quote – Policy Frustration

“It’s just a little bit maddening. …China’s responding with countermeasures to even the Swiss cheese version of the chip controls. So if that’s how it’s going to go, why not implement chip controls that are actually going to achieve their intended purpose?”
(Andrew Sharp, [09:23])

Rare Earths and Critical Minerals Dependency

• Both hosts underscore that the risk to US companies extends far beyond sales in China:
  • “All these companies are reliant to varying degrees on critical components that come from China.” (Andrew Sharp, [08:20])
  • Example: Nvidia’s dependency on Chinese-sourced dysprosium for certain capacitors.

“A bunch of companies and a bunch of industries could suffer.”
(Bill Bishop, [09:20])

4. China Expands Critical Minerals Export Ban

• [10:21] New York Times headline: “China’s critical minerals embargo is even tougher than expected.”
• Key concern: The embargo extends to companies worldwide that re-export Chinese minerals to the US, targeting supply chain intermediaries in Japan, Europe, and South Korea as well as the US.

Notable Quote – Strategic Targeting

“China’s critical minerals embargo is, quote, a direct threat to Japanese and European interests to push them away from the US with the hope and expectation the Trump team will further that objective.”
(Citing Susan C. Schwab, [10:59])

• Bill Bishop agrees the embargo mainly targets US allies, especially Japan, South Korea, and the Netherlands.

  “I wrote that in the newsletter… basically I thought it was most likely targeted at Japan and Japan, South Korea and the Netherlands.”
  (Bill Bishop, [11:18])

Memorable Moments & Quotes

• “Hard to rest easy if you’re the Defense Minister these days.”
  — Andrew Sharp, [01:40]
• “They might wonder is it really worth it to keep the Chinese market if it’s only 12% of their global revenue declining?”
  — Bill Bishop, [06:15]
• “We, for the time being, get Secretary Raimondo on the podcast before she steps down.”
  — Bill Bishop, humorously, on seeking answers from the Commerce Secretary ([09:47])
• “Certainly looks that way. But that is an assumption that we are making. And it could be separately. It could be like legitimate bad business practices by Nvidia. Yeah, it certainly is coincidental if that’s the case.”
  — Bill Bishop, on the timing of investigations ([09:53])

Timestamps for Key Segments

• [00:33] — Dong Jun meeting updates and speculation
• [01:48] — Introduction of Nvidia investigation by Chinese regulators
• [03:38] — Context on China’s antitrust and trade leverage history
• [05:43] — Comparison to US scrutiny of Nvidia, global ramifications
• [06:45] — Frustrations with US chip control policy weaknesses
• [08:20] — Discussion on rare earths and upstream supply chain risks
• [10:21] — Analysis of China’s critical minerals embargo, broader threats
• [11:18] — Embargo’s impacts on Japan, Netherlands, and South Korea

Summary

This episode captures the evolving dynamics as US-China tech and trade tensions escalate. Bishop and Sharp provide nuanced context on China’s regulatory moves against Nvidia, alongside analysis of the tit-for-tat strategies on both sides. The discussion explores real-world business impacts, such as potential financial penalties, supply chain security, and the wider repercussions for US allies. Both hosts frame these events not as isolated incidents, but as maneuvers that foreshadow further disruption as political and economic pressures rise—especially with Trump’s presidency on the horizon.

The preview ends with a call to subscribe for the full episode and further analysis.