The periwinkle rarely drops the precious gems until it is cracked. For years, China has possessed latent capabilities in the semiconductor industry. But magically, to unlock those abilities, US sanctions were needed. So, when the sanctions came, China abandoned US chips and looked inwards.

Today, it is having a moment: “In the wake of US trade restrictions on advanced chip-making equipment, China’s integrated circuit (IC) output witnessed a remarkable surge of 40% to 98.1 billion units in the first quarter of the year, per SCMP.”

When I wrote my book – Nanotechnology and Microelectronics: Global Diffusion, Economics and Policy – which won the IGI Global 2010 Book of the Year award, the ingredients of greatness were visible in China. The United States used sanctions to move China years ahead, and today, those sanctions have created immense competitions for American companies.

You can ask Apple: “The new Pura 70 series offers four phones at price points similar to the iPhone’s, and it’s presumed to run on an advanced, China-made chip, though Huawei has not revealed that information. The company’s smartphone shipments in China jumped 64% year over year in the first six weeks of 2024, per Counterpoint Research; iPhone sales dropped 24% over that same period.”

Due to those chips, very soon Apple will become history in China, and you can add Tesla, and many other US companies. Semiconductor sanctions woke a sleeping dragon, and now it is devouring everything on the path. Do not find ways to motivate your enemies.

The periwinkle rarely drops the precious gems until it is cracked. For years, China has possessed latent capabilities in the semiconductor industry. But magically, to unlock those abilities, US sanctions were needed. So, when the sanctions came, China abandoned US chips and… pic.twitter.com/N7HWl0mdKB

— Ndubuisi Ekekwe (@ndekekwe) April 18, 2024

In the wake of US trade restrictions on advanced chip-making equipment, China’s integrated circuit (IC) output witnessed a remarkable surge of 40% to 98.1 billion units in the first quarter of the year, per SCMP.

This expansion emanates from the country’s focus on boosting the production of older-generation chips while grappling with constraints imposed by international trade dynamics.

March alone witnessed a staggering 28.4% jump in national IC output, reaching an unprecedented high of 36.2 billion units, as reported by the National Bureau of Statistics (NBS) on Tuesday.

The NBS highlighted the accelerated growth in China’s hi-tech manufacturing sector, reflecting the robust expansion of the semiconductor industry, which is increasingly localized. Haitong Securities echoed this sentiment in a recent report, forecasting a strong rebound in China’s IC production for the year.

The surge in China’s IC output is attributed in part to robust demand from downstream sectors, notably new energy vehicles and smartphones. Government data revealed a 29.2% increase in new-energy-vehicle output in the first quarter, reaching 2.08 million vehicles, while smartphone production expanded by 16.7% during the same period.

In recent years, China has significantly expanded its IC production capacity, with output nearly tripling in the first quarter of 2024 compared to the same period in 2019. However, under the US embargo on advanced chip technologies, Chinese investments have predominantly focused on mature semiconductors, leading to concerns about potential overproduction.

The Centre for Strategic and International Studies highlighted this trend, suggesting that US export controls may inadvertently drive state-backed investments in legacy-chip production, potentially paving the way for Chinese dominance in this sector.

“An unintended consequence of US export controls on advanced chip technology to China may be a wave of state-backed investment leading to overproduction and, potentially, Chinese dominance of global legacy-chip production,” researchers wrote.

Taiwan-based IC research company TrendForce projected that China’s global share of mature-process capacity could reach 39% by 2027, further underscoring the country’s growing influence in the semiconductor industry.

China’s efforts to achieve self-reliance in core technologies have intensified, particularly with initiatives such as the Xinchuang campaign, aimed at developing local alternatives to foreign chips, systems, databases, and software. Beijing aims to bolster the Chinese tech sector, targeting an annual output of 100 billion yuan (US$13.9 billion) by next year.

Despite these ambitious initiatives, China remains heavily reliant on chip imports, with IC imports growing by 12.7% to 121.5 billion units in the first quarter. IC exports also edged up by 3% to 62.4 billion units, according to data released by the General Administration of Customs.

Semiconductors continue to rank as China’s largest import item, surpassing even crude oil in the previous year. This highlights the challenges, amid the country’s ongoing efforts to overcome the impacts of US trade sanctions and build self-sufficiency in semiconductor production.

Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has sought to allay concerns surrounding the country’s declining external reserves, which have been linked to recent naira gains in the forex market.

Nigeria’s foreign exchange reserves have witnessed a significant downturn, plummeting by approximately $2.16 billion in 29 days. Current figures from the CBN reveal that the FX reserves stand at $32.29 billion as of April 15, 2024, marking the lowest level since September 25, 2017.

The depletion of FX reserves raises concerns about the country’s balance of payments and its ability to meet international obligations. Furthermore, it may impact investor confidence and potentially lead to a credit rating downgrade, exacerbating the nation’s borrowing costs.

Contrary to speculations, Cardoso said that the decrease in reserves was not a result of the apex bank’s efforts to defend the naira. Rather, he attributed the decline primarily to debt repayments and other standard financial obligations.

“Let me clarify that the decreasing foreign exchange reserves are not due to our efforts to defend the naira,” Cardoso stated emphatically. “The shifts in our reserves are largely influenced by routine debt repayments and other financial commitments.”

Cardoso explained that there were no intentions to defend the currency using the external reserves, especially given the implementation of a willing buyer, willing seller policy by the central bank. He said “the shift you see in our reserves” has little or nothing to do with defending the naira, and that is “certainly not our objective.”

Cardoso explained that Nigeria’s significant reduction in external reserves can be attributed to the country’s obligations to fulfill its debt repayments. This financial activity, he noted, is a routine practice essential for maintaining national credibility in the global financial arena.

“What you see with respect to the shifts in our reserves is the shift you will find in any country’s reserve situation where, for example, debts are due and certain payments need to be made,” Cardoso explained. “These payments are made as part of keeping our credibility intact.”

Nigeria faces substantial external debt service requirements, including payments on Eurobonds and other international financial obligations. The repayments of these debts necessitate substantial amounts of foreign currency, further depleting the reserves.

Between January and October 2023, Nigeria allocated approximately 50% of its dollar payments to service external debts, indicating the increasing strain of foreign debt on the nation’s economy. Furthermore, Nigeria’s expenditure on external debt servicing surged to $560 million in January 2024, representing a staggering 339% increase compared to the previous year’s $112 million.

Reiterating the central bank’s commitment to a market-driven approach, Cardoso highlighted the CBN’s commitment to currency prices to be determined by willing buyers and sellers, without direct intervention from the bank.

“Our overall policy and philosophy advocate for a market-driven approach,” Cardoso stated. “We encourage willing-buyer willing-seller price discovery. Ultimately, I perceive a future where the central bank will really not need to intervene except in very unusual circumstances.”

He also addressed the interventions in the Bureau De Change (BDC) segment, saying they are minimal and targeted to ensure effective integration into the broader market.

“I can understand that especially at the outset, there have been little cases where the bureau de change (BDC) needed to be supported,” Cardoso acknowledged. “But in terms of intervention, that is really not our intention at all.”

So far, the CBN has conducted three dollar sales to BDCs, with the most recent sale totaling $10,000 to each BDC at a rate of N1,101/$1.

Additionally, Cardoso disclosed a recent influx of approximately $600 million into the reserve account over the past two days, noting that these movements were routine and not aimed at defending the naira.

“What is important to us is that there is sufficient liquidity in the market,” Cardoso stressed. “As long as we have a vibrant currency market, why do we need to intervene? We don’t need to.”

Nigeria is grappling with intense economic challenges characterized by high inflation and poorly performing currency, which have significantly contributed to the soaring cost of living. Although the President Bola Tinubu administration has rolled a flurry of policies targeted at economic growth, the bounce back is not expected to take effect soon. The International Monetary Fund (IMF) projects recovery by 2028.