The CCP strikes at the heart of the US military industry? Musk’s breakthrough shatters the blockade

It's all covered in today's China Truths. The CCP imposed high tariffs on American goods, and American high-tech companies were not hurt, but the C919 large aircraft project, built by the CCP with the whole country's strength, was crippled. The CCP recently imposed rare earth export controls to counter the United States, but Musk's black technology, minimally invasive surgery, motor manufacturing process may cause rare earth export controls to be abandoned halfway. Huawei claimed that the two AI processors it launched recently used domestic chips, but a research institute disassembled them and found that they used TSMC technology, which was a slap in the face. The director of the White House National Economic Council claimed that more than 15 tariff agreements would be reached soon. In recent months, China has suspended imports of liquefied natural gas from the United States. Analysts believe that economic recession and falling demand are the main reasons. In anger, Beijing returned the domestic C919 to its original form. The Wall Street Journal quoted people familiar with the matter as saying that the Chinese authorities have told domestic airlines to suspend orders for new Boeing aircraft and obtain approval before accepting aircraft orders. Analysts said this will have an adverse impact on the local aircraft manufacturer, Comac. The report pointed out that for many years, Boeing has been the largest industrial exporter to China. According to data from the International Trade Administration, the United States exported nearly $12 billion worth of aircraft, spacecraft and parts to China last year, while the amount of such products imported from China was almost zero. The reason why Comac's main commercial aircraft, the C919, is airworthy is also because it uses key technologies from American companies. Comac has vigorously promoted the C919 internationally, including at last year's Singapore Air Show, but no foreign deliveries have been announced. There are only about 16 C919s in commercial operation in China. Take Air China as an example. As of the end of last year, the company had three C919s, accounting for less than 1% of its total fleet of 930. Ronald J. Epstein, an analyst at Bank of America, said in a report that, unlike many other industries, the commercial aerospace industry does not rely on low-cost manufacturing in China, and expressed doubts about Beijing's ability to boycott Boeing for a long time. If China stops buying aircraft parts from the United States, the C919 project will stagnate or even end. Reports indicate that the Beijing authorities are pressuring domestic airlines to buy Comac aircraft, but analysts believe that such products currently do not pose much of a threat to Boeing and Airbus, although the Chinese government has required most Western technology to be transferred to domestic joint ventures since the beginning of the C919 development to prevent possible export controls in the future, key parts such as engines still need to be imported. The fight is fierce. Is the CCP directly attacking the heart of the U.S. military industry? Musk's amazing innovation has broken through the siege. The Ministry of Commerce of the Communist Party of China, together with the General Administration of Customs, recently issued an announcement to implement export controls on seven types of medium and heavy rare earth-related items, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. In this regard, the CCP mouthpiece Ta Kung Pao described China's precise counterattack to control rare earth exports as, directly piercing the heart of the U.S. military industry. Some analysts pointed out that the CCP's export controls may stimulate the United States and its allies to advance the rare earth self-sufficiency plan faster and more forcefully, thereby weakening China's long-term dominance in the global rare earth market. At the same time, the control measures may also cause Chinese rare earth companies to lose some overseas market share, further exacerbating the industry's difficulties. On the evening of April 18, the annual report released by the Northern Rare Earth Group showed that in 2024, the company achieved operating income of 32.966 billion yuan, a year-on-year decrease of 1.58 percent. Net profit attributable to the parent was 1.004 billion yuan, a sharp year-on-year decrease of 57.64 percent. At the same time, the situation of China Rare Earth Group is even more severe. The central enterprise previously announced that it expects a net loss of 267 million to 357 million yuan in 2024, a significant deterioration in profitability compared with the previous year. As the U.S.-China trade war intensifies, the CCP has suspended the export of rare earth minerals and magnets, severely damaging the global automotive and other industrial supply chains. However, Tesla's 2023 patent for an innovative motor design may provide a breakthrough for the United States to crack the CCP's rare earth blockade, demonstrating its resilience in technological breakthroughs. According to WCCF about 90 percent of the world's rare earth metals rely on the CCP's supply, and a long-term ban may lead to a break in the supply chain of European and American car manufacturers and hinder new production capacity. Faced with the CCP's resource blockade, the market's demand for alternatives has become more urgent. DGA Group partner Kui Uluo said that since the CCP imposed restrictions last week, electric vehicle companies and other industries have been competing to find alternative sources of rare earths, but there are few viable options. Faced with the CCP's resource blockade, the market's demand for alternatives has become more urgent. Against this background, WCCF Tech pointed out that Tesla's patent applied for in 2023, International Gazette number WO2024097176A1 has become the focus. The patent proposes a minimally invasive surgery motor manufacturing process that significantly reduces the amount of rare earths by drilling precision grooves 0.2 to 1.5 millimeters deep in the magnet structure and adding specific dopants while maintaining magnetic properties and simplifying the production process. WCCF Tech emphasized that Tesla's innovation not only eased the United States' dependence on the CCP's rare earths, but also injected hope into the de-risking of the supply chain. AI processors rely entirely on the United States and Taiwan, and the CCP will be recently launched the AI processors Ascend91B and Ascend91C. Research Institute Semi-Analysis disassembled and found that these two AI processors use TSMC's 7-nanometer chips. Because the United States has restricted TSMC from exporting high-end chips to China, this discovery has caused an uproar in the global semiconductor industry and the United States. Huawei claims that these two AI processors are manufactured in mainland China and produced by SMIC, but in fact, the mainland's 7-nanometer technology is not mature, and most of these two processors are manufactured using TSMC's 7-nanometer chips. Regarding TSMC's 7-nanometer chips, Huawei may obtain them in two ways. One possibility is that Huawei stored these chips before the implementation of export controls. Another possibility is that Huawei obtained TSMC chips through a third party, the so-called White Gloves. Many governments are actively negotiating tariffs with the United States after President Trump announced a global tariff policy. Kevin Hassett, director of the White House National Economic Council, said on Friday, April 18, that more than 15 trade agreements will be reached soon. Hassett did not provide specific details of any deal, but said that these deals have made really significant progress. His remarks echoed the message delivered by White House spokeswoman Caroline Leavitt at a press conference on April 15. U.S.-China trade war, China suspends imports of U.S.-liquefied natural gas. According to the Financial Times, there has been no other transportation between the United States and China since a 69,000-ton LNG tanker from Corpus Christi, Texas, arrived in Fujian Province on February 6. Another tanker that was originally scheduled to arrive in China was diverted to Bangladesh because the Chinese authorities imposed a 15 percent tariff on U.S. LNG on February 10. Since then, the tariff has increased to 49 percent, making U.S. natural gas no longer economical for Chinese buyers in the short term. The current ban on U.S. LNG by the Chinese authorities is similar to the more than one year-long restriction on U.S. LNG imports during Trump's first presidency, 2017 to 2021, but now China's energy demand has declined amid a severe economic downturn. The report quoted Gillian Bacara, an analyst at international data intelligence company Kapler, as saying that she believes that trade between the two countries will not resume in China's financial crisis is near, from 271 bank branch defaults to elderly bank run. The mid-year reports of China's A-share-listed banks on August 31 showed that the net interest margins of Chinese banks have continued to decline in recent years. In July this year, the number of defaults on commercial bills by Chinese banks surged, and Chinese people's confidence in bank deposits also dropped unprecedentedly. Some political and economic figures said that China's financial crisis is about to come. According to the July 2023 commercial bill default data form released by the Shanghai Commercial Paper Exchange in August, as of July 31, a total of 2,851 commercial bill acceptors had defaulted, an increase of about 80 percent from 1,554 in January. Among the defaulters of commercial bills, 271 were branches of state-owned banks and branches of local urban and rural commercial banks, city commercial banks, rural commercial banks. Within one month, the number of defaults increased by 239 from 33 in June, a month-on-month increase of 356 percent. Of the 271 bank branches that defaulted on their bills, the five largest state-owned banks—Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Postal Savings Bank—accounted for 167. The remaining 104 are mostly urban and rural commercial banks that are at risk of bankruptcy, and there are also individual joint-stock banks and branches of foreign banks. The state-owned banks of the Chinese Communist Party are large state-owned banks directly controlled by the Chinese government and represent the strongest financial capital in China. Among them, the four old national banks refer to the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank. Now the names of these banks all appear on the overdue list of acceptors. The acceptor's breach of contract means that the acceptor cannot fulfill the obligation on the note on time—that is, the cash corresponding to the note cannot be paid on time. The overdue acceptor announced by the Shanghai Commercial Paper Exchange refers to an acceptor whose bills are overdue three or more times and have an overdue balance at the end of the month or have overdue bills during the month. The Shanghai Commercial Paper Exchange is a commercial paper exchange promoted by the Central Bank of China, People's Bank of China, which releases data on commercial paper defaults every month. Because the Central Bank does not publish the non-performing ratio of commercial banks on a monthly basis, the commercial paper default data of the Shanghai Commercial Paper Exchange has become an important window for people to observe credit risks. The Shanghai Ticket Exchange began publishing bank acceptance bills from January 2023. Most of this year's notes have maturities of six months. Before July, the number of overdue bank notes announced by the Shanghai Ticket Exchange was very small. After July, 271 bank commercial bill default records appeared in a concentrated manner, showing that China's credit risk has spread from real estate and investment and financing platforms to the banking system. Who would have thought that even a bank's commercial note could be breached? Note that all this is just the beginning. Bank revenue woes exacerbate financial risks. Net interest margin is regarded as the lifeline of banks. The higher the net interest margin, the higher the net interest income, and net interest income accounts for 60% to 70% of the bank's total revenue. The narrowing of net interest margins of Chinese banks has become a fact and has directly affected bank revenue. On August 31, the mid-year reports of China's A-share listed banks were released. Statistics show that among the 42 listed banks, 20 have net interest margins below the 1.8% warning line. In the first half of this year, the overall interest margin of China's state-owned banks fell the most, with an average net interest margin of 1.71%. The data also shows that banks' net interest income is bleak and has entered a crisis state below the warning line. This situation is consistent with the sudden increase in the number of defaults on bank commercial bills. From September 2022 to now, mainland China banks have lowered bank benchmark interest rates five times in a row. Since the beginning of this year, following the interest rate cut in June, interest rates were cut again on August 15. The decrease was the largest since 2020, mainly targeting time deposits and certificates of deposit. Starting from September 1, 18 banks, including commercial banks, once again lowered their deposit interest rates. These eager interest rate cuts show that the Chinese Communist Party authorities have repeatedly lowered interest rates to reduce funding costs. It also shows that the authorities' interest rate cuts have had little effect in stimulating consumption. In recent years, China's real estate giants have experienced frequent explosions. Local banks have gone bankrupt. Not long ago, Zhongrong Trust, which was favored by high-net-worth individuals, suspended redemptions without warning. The credit risks of China's financial sector have repeatedly undermined people's confidence in investment and financial management. People are more willing to choose bank deposits, which are relatively safe and sound, but confidence in banks has dropped as never before. Wang Nan, pseudonym, a Shenzhen citizen, said on August 23, even our deposits have to be divided among the four major state-owned banks. Each bank does not exceed 499,000 yuan, and other banks have to stand aside. The remaining money is used to buy gold bars and put them under the bed at home. Who can you trust? This is a credit crash. After all the Zhongrong Trust financial products that Wang Nan invested 11 million yuan and were suspended, she and 150,000 other investors returned to poverty overnight and became the target of official stability control. She also said that the consensus among investors in the group is that they no longer trust any financial institutions from the government and will no longer buy products from any financial institutions, including bank financial management. Recently, some financial professionals have reminded people on social media that the deposit in a bank should not exceed 500,000 yuan. If you have a lot of cash, it is better to spread it across different banks. If you have a deposit of 500,000 in hand, you should deposit it in several banks separately so as to ensure the safety of the deposit as much as possible. According to the current deposit insurance law, if a depositor's deposit principal plus interest in the same insured bank is within 500,000, full repayment will be implemented. For deposits exceeding 500,000 yuan, depositors will bear certain risks and possibilities of loss. A bank staff member in Guangdong anonymously posted an article online. Bankers tell you that you must remember these four points when depositing fixed-term deposits in banks. Many people have already suffered losses. The article reminded people who go to banks to deposit fixed-term deposits how to avoid stepping into traps inside. It recommends, when depositing large-time deposits, be sure to use deposit receipts or passbooks instead of bank cards, when depositing money in a bank, never automatically transfer it, etc. Elderly bank run, queuing up to withdraw money at the bank. The elderly are the main bank depositors in China. Recently, long lines of elderly people have appeared in front of banks in Guangdong and other places to withdraw money. The internet is also hotly discussing the fact that old people would rather give up the interest provided by the bank and go to the bank to withdraw money in person. Some comments said that the elderly are going to banks to withdraw money, which shows that they are worried about financial risks, feel unsafe about depositing money in banks, and are afraid that their deposits will be frozen or lost. A Twitter account with the same name as Luo Xiang, a professor of criminal law at China University of Political Science and Law, recently retweeted a video of an elderly person making a run on their money, with the text saying that major banks in China are being run by the elderly. The reason is that in order to misappropriate personal deposits, the bank requires the elderly to be present in person when withdrawing money and creates all kinds of outrageous difficulties. Netizenian commented, My father's money was deposited in the bank before his death and I still can't withdraw it. There have been reports in the news that banks did not allow family members to withdraw money after an old man passed away. Some children were forced to a paralyzed old man to the bank to withdraw money, a 94-year-old man was even carried into a bank for facial recognition. These live cases are making more and more elderly people and their families feel uneasy. Liao Shiming, a Hong Kong political and economic commentator living in the United States, said on September 5, a very important reason for the surge of elderly people queuing up to withdraw money is the simple and crude practices of banks. If the elderly are seriously ill and unable to move or pass away, then the large amount of money can hardly be taken out, so they are all withdrawing money now. This will have a great impact on China's banks. Because everyone has withdrawn money, there will be less money in the bank pool, which will easily lead to the risk of liquidity for banks and even trigger a banking crisis, which will definitely have an impact on the Chinese economy. From the recent default of more than 270 bank bills to the elderly people who do not trust banks and go to make bank withdrawals, these aspects together indicate that the financial crisis in Chinese society is about to begin. Please share your thoughts in the comments section below. 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