How China’s slowdown may spill over to Malaysia

China’s slowdown is a key risk for the world economy, commodities and energy markets as well as the semiconductor industry. — Bloomberg

CHINA’S stuttering economic recovery post-Covid-19 pandemic reopening has stirred concerns that a protracted deep economic slowdown will have global repercussions, given its interconnectedness with each and every economy in this globalised world and transmission to both emerging and developed countries through different channels.

A slowing China economy is a bane for the world economy. While the global economy continues to gradually recover in 2023, the growth remains weak and low by historical standards, and the balance of risk remains tilted to the downside. It is not out of the woods yet.

Global manufacturing and services activities are losing momentum. Global trade, especially exports, remain in the doldrums, weighed down by weak consumer and business spending amid a continued inventory adjustment in the semiconductor sector.

Prices of commodities and energy have also softened. Global monetary tightening has started to weigh down on activity, credit demand, households and firms’ financial burden, putting pressure on the real estate market.

A slew of disappointing economic data for two consecutive months (June and July) from China indicated that the world’s second-largest economy (17.8% of the world’s gross domestic product or GDP) is indeed losing steam.

Falling exports, weak consumer spending, slowing growth in fixed investment and continued concerns about the property sector have dampened the recovery.

The emergence of deflation concerns adds to the complexity of China’s flagging recovery.

The Chinese government has provided a range of strategic measures aimed at targeting specific sectors.

These range from consumption (spending on new energy vehicles, home appliances, electronics, catering and tourism) to the property sector (reducing down-payment ratios for first-time homebuyers, lowering mortgage rates and easing purchase restrictions for buying a second house) and tax relief measures to support small businesses, tech startups and rural households.

China’s slowdown is a key risk for the world economy, commodities and energy markets as well as the semiconductor industry.

Prior to the Covid-19 pandemic, China was the world’s most important source of international travellers, accounting for 20% of total spending in international tourism (US$255bil overseas and making 166 million overseas trips in 2019).

We consider three channels through which China’s slowdown can have spillover effects on Malaysia via direct and indirect transmissions: trade and commodity prices, services and financial markets.

Overall, the estimated impact of a 1% decline in China’s GDP growth could impact about 0.5% points on Malaysia’s economic growth.

Trade is the most important channel as China has been Malaysia’s largest trading partner since 2009, with a total trade share of 16.8% (exports share: 13.1%; imports share: 21.2%) in the first half of 2023 (1H23).

Spillovers from slower China demand and commodity prices are negative for Malaysia, a net commodity exporter.

After recording seven successive years of increases in exports to China since 2017, Malaysia’s exports to China declined by 8.8% in 1H23.

In sectors such as tourism, China’s tourists are one of the major foreign tourists in Malaysia. In the first five months of 2023, Chinese tourists totalled 403,121 persons or 5.4% of total international tourists in Malaysia, and was only 12.9% of 3.1 million persons in 2019.

According to the Malaysia Inbound Tourism Association, though the number of Chinese tour groups coming to Malaysia has increased in July and August to between 800 and 1,000 for the summer vacation, the number of tourists per group is smaller between 10 and 20 persons.

While direct financial links between China and Malaysia are limited, there will be indirect spillovers through spikes in global financial volatility as investors worry that China’s deep economic slowdown would temper global growth, and also has spillovers to the US economy.

Will China foreign direct investment (FDI) inflows into Malaysia slow?

Capital movements will be influenced by the inter-linking of factors such as economic growth and investment prospects in the host country (Malaysia).

These include stable political conditions and good economic and financial management as well as conducive investment policies.

The US-China trade war and rising trends of geoeconomic fragmentation have witnessed FDI flows among geopolitically aligned economies that are closer geographically as well as geopolitical preferences.

Throughout the period 2015-2022, China’s gross FDI inflows into Malaysia averaged RM7.5bil per year. Even during the Covid-19 pandemic, China’s economic slowdown did not deter the inflows of FDI into Malaysia (RM7.8bil in 2020; RM8.1bil in 2021; and RM9.8bil in 2022).

In 1H23, China’s gross FDI inflows increased by 25.2% to RM2.1bil though it is likely that the full-year FDI will be below the average FDI inflows of RM8.6bil per year in 2020 to 2022.

China was the largest foreign investor in Malaysia’s manufacturing sector in 2016 to 2022 before dropping to second position in 2022 and the fourth position in 2021.

There was a contrasting picture when it comes to China’s approved investment in the manufacturing sector, which saw two consecutive years of decline (2022: 42.5% to RM9.6bil and 2021: 6.5% to RM16.6bil) and declining further by 17.8% to RM4.3bil in the first quarter of 2023.

We believe that Malaysia will remain one of the preferred investment destinations to China, given both countries’ strong established friendship and bilateral ties in trade and investment as well as people-to-people movements.

Malaysia needs to enhance its investment climate with progressive policies to rival regional peers to offer the country as a China Plus One destination for China and foreign companies.

Malaysia can offer investments to build a chip-testing and packaging factory, advanced manufacturing technologies such as robotics and automation, manufacturing electric vehicle supply chain, petrochemicals, renewable energy, agriculture and food processing.

China can offer the technology, innovation and technical know-how as well as talent that deepen the country’s industry integration with global supply chains and also links Malaysia and China to South-East Asia.

China can invest in Malaysian manufacturing companies to help them adopt advanced manufacturing technologies and further improve their competitiveness.

The RM170bil prospective investments (comprising RM69.7bil from 19 memoranda of understanding and RM100.3bil from the round-table meeting) concluded during the prime minister’s visit to China are set to provide a massive investment boost to our economy for years to come.

Among these are China’s Rongsheng Petrochemical Holdings, which will invest RM80bil to build a petrochemical park in Pengerang, Johor; and investment from Geely, with an initial investment of RM2bil in the Tanjung Malim Automotive Valley, which will gradually increase to RM23bil in the future.

 LEE HENG GUIE is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.

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INTERACTIVE: Journey to Merdeka

Reversing declining R&D investments

 

 

CLICK TO ENLARGE

SIX decades ago, Malaysia was richer than South Korea and Taiwan.

But today, the country is behind these two technology superpowers and is still trying to break out of the middle-income trap.

Taiwan overtook Malaysia’s gross domestic product (GDP) per capita in the mid-70s, and not long after that, South Korea overtook Malaysia in the mid-80s.

A major reason for Malaysia lagging behind Taiwan and South Korea is the failure to invest adequately in research and development (R&D) that ultimately resulted in low local technology creation.

This is reflected in the number of patents granted, as mentioned in the World Intellectual Property Indicators report.

In 2022, a total of 6,876 patents were granted in Malaysia, out of which almost 85% were granted to non-residents.

In contrast, South Korea granted 145,882 patents in 2022. Three out of four patents in that year were granted to residents.

Official figures show that Malaysia’s gross expenditure on R&D (GERD) has been declining in the past several years, even before the Covid-19 pandemic.

In fact, the country’s GERD per GDP dropped to just 0.95% in 2020, which was the lowest since 2010.For comparison, countries like South Korea, the United States and Japan spent 4.81%, 3.45% and 3.26% of their GDP in 2020 for R&D, respectively.

Notably, China’s GERD per GDP stood at 2.4% in 2020, significantly higher than Malaysia despite having an almost similar GDP per capita.

It is noteworthy that Malaysia is well behind its GERD per GDP target of 3.5% by 2030. The intermediate target is 2.5% by 2025, which is just two years’ away.

Science, Technology and Innovation (Mosti) Minister Chang Lih Kang

In a reply to StarBizWeek, Science, Technology and Innovation (Mosti) Minister Chang Lih Kang acknowledges that the gap to achieve the 2030 target is “stark and significant”.

He also adds that there is a funding shortfall of RM40bil to achieve the 2025 target.

“The slump in GERD before 2020 primarily stems from a dwindling contribution from the business sector, which started around 2016.

“While the government has consistently provided substantial R&D funding, it’s imperative for the business and industry sectors to substantially participate.

“After all, these sectors stand to gain the most from R&D innovations, utilising outcomes to enhance products, refine business processes, and overall drive competitive advantage,” says Chang.

Malaysia’s long-delayed ambition to become a high-income nation relies on the country’s ability to effectively spend on R&D efforts in high-potential areas.

Increased R&D efforts that would lead to greater technology adoption in the country are highly necessary, considering that Malaysia is set to become a super-aged country by 2056.

Amid declining fertility rates, more of the country’s workforce must be automated and mechanised to avert any crisis in the future.

Mosti Minister Chang also says that a higher expenditure on R&D serves as a foundational indicator in many global indices like the Global Innovation Index (GII) and the Global Competitiveness Index (GCI).

In the Madani Economy framework unveiled by Prime Minister Datuk Seri Anwar Ibrahim last month, these two indices were mentioned as some of the key performance indicators (KPIs), moving forward.

Anwar envisages Malaysia to be among the top 20 countries in GII by 2025. As for GCI, Malaysia aims to rank in the top 12 within the next 10 years.

It is understandable why Anwar hopes to improve Malaysia’s ranking in such indices.

“These indices are meticulously scrutinised by foreign investors when determining potential investment destinations,” according to Chang.

Spending it right

A similarity between South Korea and Malaysia is the fact that both governments have in the past invested significantly in building local industries, including for R&D efforts.

“Chaebols” or South Korean mega-conglomerates were once small businesses that received generous support from the government since the early 1960s. This has helped to nurture internationally recognised brands such as Samsung and Hyundai.

Similarly, Malaysia has also channelled billions of ringgit into profit-driven entities such as car manufacturer Proton and semiconductor wafer foundry Silterra.

However, unlike in South Korea, these heavy industrialisation projects that were introduced during the administration of Tun Dr Mahathir Mohamad failed to sustain commercially and continued to depend on government handouts.

These two projects have since been privatised. Proton Holdings Bhd made a rebound after China’s Zhejiang Geely Holding emerged in the carmaker with a 49.1% stake.

Meanwhile, Silterra was sold to Dagang NeXchange Bhd (Dnex) and Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (Limited Partnership) – also known as CGP Fund.

Dnex holds a 60% stake in Silterra, while CGP Fund owns the remaining 40%.

An analyst explains that the failure of Proton and Silterra was the result of continued government funding in the past, even if the management did not achieve tangible results.

“South Korea was different. You have a set of KPIs outlined along the timeline. If you don’t perform, you won’t get the money,” the analyst says.

Like it or not, the government has a big role to play in stimulating R&D efforts in the market.

The US government, for instance, is a major funder of R&D and is also a major user of the new innovations that may have yet to receive demand from the public.

It is noteworthy that the Internet and the global positioning system (GPS) began as projects under the US Department of Defence.

It is typical of the private sector to innovate and to create new products only when they foresee market opportunities.

With shareholders’ ultimate focus being on profit, the private sector may have its limitations when it comes to risk-taking.

In the case of Malaysia, businesses do not reinvest an adequate amount of their profits into R&D, despite the fact that Malaysian companies retain high operating profits.

In 2022, the gross operating surplus of businesses constituted 67% of GDP, which increased from 62.6% in 2021.

The easy supply of cheap foreign workers, particularly before the pandemic, has further allowed Malaysian companies to avoid R&D and automating a large part of their operations.

Distinguished professor of economics Datuk Rajah Rasiah agrees that the domestic private sector does not invest adequately in R&D.

“As firms move up the technology trajectory towards frontier innovations, they expect strong support from the embedding ecosystem, especially the science, technology, and innovation (STI) infrastructure.

“Although Malaysia did attempt to create the STI infrastructure after 1991, almost all of them (such as Mimos, Science and Technology Parks and the incubators in them as well as the Malaysian Technology Development Corp) were not effectively governed, and hence, they have become white elephants.

“Given the lack of such support and ineffective governance of incentives and grants in the selection, monitoring and appraisal of their output, private firms are unconvinced that attempts to upgrade to participate in R&D will materialise,” he says.

Techpreneur Tan Aik Keong also points out that Malaysian companies face fundraising difficulties for R&D purposes, especially small and medium enterprises and unlisted companies.

Tan was recently appointed as a member of the National Digital Economy and Fourth Industrial Revolution Council. He is also the CEO of ACE Market-listed Agmo Holdings Bhd.

“Investors and lenders may hesitate to support R&D initiatives due to the inherent risks and uncertainties associated with these endeavours.

“The lack of a guaranteed correlation between R&D investment and immediate revenue generation can lead to doubts about the return on investment (ROI),” he says.Tan opines that the lack of “proven success stories” whereby R&D investments in Malaysia resulted in significant ROIs contributed to the scepticism.

In addition, he says that companies with no prior experience in R&D investments would find it challenging to start investing heavily in R&D.

“For listed entities, there is relatively more flexibility in terms of fundraising for R&D purposes.

“Capital market instruments such as private placements and rights issues can be leveraged to raise larger sums of funds to support R&D initiatives.

“Fortunately, the availability of matching grants from agencies like Mosti, MDEC, Miti, and MTDC can provide much-needed financial support and incentive for companies to invest in R&D activities,” he says.

Acknowledging the challenges, Mosti Minister Chang says that alternative financing mechanisms are being considered

A notable example is the Malaysia Science Endowment (MSE), which has set an ambitious goal of raising RM2bil.

“MSE is more than an alternative R&D funding for the nation.

“The working model is to utilise its interest, which will be generated from the investment.

“The fund would be optimised further through a matching fund mechanism – bringing quadruple helix stakeholders together to focus on solution-driven R&D and prioritising based on the nation’s needs,” he says.

Mosti, with Akademi Sains Malaysia, is currently actively developing a fund-raising mechanism to establish the MSE.

In addition, Chang says the government will continue to deploy a myriad of fiscal incentives that include tax exemptions and double deductions on R&D expenditures.“The overarching goal is to promote a symbiotic relationship where both the private sector and the government collaborate seamlessly to advance Malaysia’s R&D aspirations,” he says.

Lack of quality researchers?

R&D efforts are not just about investing a large sum of money. They will only yield best results if they are supported by qualified, world-class researchers.

Unfortunately, in the case of Malaysia, brain drain has become a major challenge in pushing for greater R&D.

The ongoing decline in interest among schoolchildren in science, technology, engineering and mathematics (STEM) studies will only worsen the situation in the future.

Agmo’s Tan notes that the declining interest in science subjects among students threatens the availability of skilled researchers, scientists, and engineers needed for a thriving R&D ecosystem.

“The potential for brain drain is a legitimate concern if Malaysia does not foster an environment conducive to R&D growth,” he says.

In 2020, Malaysia saw a decline in the number of researchers per 10,000 labour force at only 31.4 persons, as compared to 74 persons in 2016.

At 31.4 persons, this was the lowest level since 2010.

Rajah says that Malaysia lacks quality R&D researchers, as well as engineers and technicians to support serious R&D participation.

“Malaysia’s researchers and R&D personnel in the labour force fall way below that of Japan, South Korea, Taiwan, Singapore, and China.

“In fact, this is one of the major reasons why national and foreign firms participate little in R&D activities in Malaysia,” he adds.

When asked about the commercialisation of research done by Malaysian universities, Rajah says the commercialisation ratio against grants received in Malaysia is very low.

This is compared to the Silicon Valley and Route 128 in the US, the science parks in Taiwan, and the Vinnova targeted areas in Sweden.

However, Rajah says the blame for the low rate is mistakenly placed on the scientists.

“Most universities in Malaysia focus on scientific publications, which is a major KPI for them. Malaysia does well on scientific publications.

“Mosti and the Higher Education Ministry should make intellectual property (IP) and commercialisation equally important.

“In doing so, the government must tie grants and incentives to link researchers and firms by offering matching grants so that the research undertaken by the scientists are targeted to the pursuit of IPs and monetary returns.

“Firms in this case will ensure that the 1:1 sharing of funds with the government brings returns for them – widely undertaken successfully in Japan, the Netherlands and Taiwan,” he says.

At the same time, Rajah suggests a critical appraisal of previous grants approved to ensure that mistakes are not repeated.

CLICK TO ENLARGE

In further strengthening the country R&D expertise, there are calls to improve universities’ curriculum more holistically.

Technology consultant Mohammad Shahir Shikh said there is a gap and misalignment between industries’ requirements versus theoretical research in new knowledge discovery by the universities.

He calls for greater partnership between universities and the industry, including for improving business operations via the integration of new technologies.

Mohammad Shahir has previously served as an engineer with chipmaker AMD for 11 years.

He raises concerns about the severe shortage of STEM graduates in Malaysia to serve the needs of the industries.

“The country’s target was to have 500,000 STEM graduates by 2020, but we now have only 68,000 such graduates.

“Even then, the highest number of unemployed graduates here is from the STEM stream.

“My proposal to the government is to start assisting potential schools and STEM students become familiar with scientific terms in English and improve their communication skills,” he adds.

Mohammad Shahir points out that about 30% of Finland’s workforce consists graduates from the STEM stream.

“This is a priority that needs to be addressed if we want to achieve our national innovation goals,” he says.

National STEM Association president and founder Prof Datuk Dr Noraini Idris laments that only about 15% of form four students take pure science subjects, namely physics, chemistry, biology and additional mathematics.

The percentage has fallen from abogaut 19% back in 2019.

“This is alarming. We need more students to take pure sciences if we want to create more scientists, data analysts and researchers for the future.

Noraini calls for a complete revamp in the national education system, whereby “STEM culture” is fostered among children from a very young age.

“My team and I have proposed the “cradle-to-career” model which instils the interest for STEM from nurseries and preschool to tertiary education.

“It also needs formal and informal support, whereby informal refers to family, peers and community to foster the interest in STEM.

“For this to happen, we need the effort of various ministries and not just the Education Ministry,” she says.

It is high time, according to Noraini, to set up a department for STEM directly under the Prime Minister’s Department to coordinate the joint-efforts across ministries.As the country works towards improving STEM’s acceptance, Agmo’s Tan says Malaysia must put more emphasis on R&D efforts in emerging technologies such as artificial intelligence, blockchain, extended reality and cloud computing, among others.

“We must encourage the establishment of R&D centres by high-tech companies through attractive incentives,” he adds.

Looking ahead, the government has a lot of issues on its plate to address.

To reboot the economy, it is not only about spending more money on R&D.

More importantly, every ringgit invested must be spent efficiently in high-growth research areas that will yield strong ROIs.

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Musk’s Starlink lands in Malaysia

Elon musk's Starlink satellite internet is now available for subscription in Malaysia #starlink

Just landed: Starlink announced its arrival in Malaysia with a photo of its electronic phased array antenna set against a backdrop of the Petronas Twin Towers in Kuala Lumpur. — @Starlink/Twitter

PETALING JAYA: Starlink’s satellite-based broadband service is now available in Malaysia, following the Prime Minister’s virtual meeting with Elon Musk on July 14.

This makes Malaysia the 60th country to be served by the Musk-owned satellite constellation.

The service, which doesn’t come with a contract, requires users to self-install the hardware and purchase the starter kit.

Customers can try out its service for 30 days and return the hardware for a full refund if they are not satisfied with it.

In an announcement on July 20, Communications and Digital Minister Fahmi Fadzil said that Malaysia issued the licence to allow Starlink to provide Internet services locally.

He added that the government is prepared to cooperate with satellite communication firms such as Starlink to achieve 100% Internet coverage in populated areas.

However, Dr Sean Seah, Malaysian Space Industry Corporation (Masic) pro tem deputy president, is concerned that Starlink’s entry could put local companies at a disadvantage.

"Furthermore, currently Malaysia has achieved more than 96% nationwide Internet connectivity coverage (Malaysia Stats Dept 2022) with services from Malaysian companies without Starlink."

"Chances must be given to local companies that have invested billions, before bringing in Starlink to compete with them," he said.

He also claimed that Malaysia may be exposed and risks being under "surveillance" or "profiling" by Starlink satellites, adding that they are also "not owned, controlled, or regulated" by Malaysian regulators and law enforcement, and Starlink has been given a "special exemption" to operate in Malaysia as a 100% foreign-owned entity.

"This may lead to national sovereignty issues," Seah said in a statement.

Starlink’s Starlink Kit comes with an electronic phased array antenna with a base suited for ground installation, a WiFi router and cables.

The standard version, which Starlink recommends for “residential users and everyday Internet applications” costs RM2,300.

The high-performance kit, which is priced at RM11,613, is recommended for “power users and enterprise applications”.

Starlink claimed that the high-performance kit offers improved weather resistance, three times better speeds at temperatures above 35°C and better visibility, especially in areas with unavoidable obstructions.

Starlink’s Internet plan offers up to 100Mbps (megabits per second) download speed and costs RM220 monthly.

Customers will also have to pay an additional RM100 for shipping and handling fees, with delivery times expected to be between one and two weeks.

Datuk Seri Anwar Ibrahim held a discussion with Musk on July 14, welcoming the company’s decision to invest in Malaysia, which includes launching Tesla EVs and Starlink.

In an online report, Anwar said that he has ordered 40 Starlink sets for schools, colleges and universities.

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The rise of China’s Silicon Valley, Zhongguancun (ZGC) (中关村) - Top scientist, entities gather at popular forum

BEIJING: Northwestern Beijing’s Zhongguancun, known as “China’s Silicon Valley,” currently finds itself at the nexus of world attention on scientific and technological innovation.

Running from May 25 to 30, the ongoing 2023 Zhongguancun (ZGC) Forum being held in the Chinese capital’s innovation hub, has drawn top scientists, institutions, and well-known innovation and entrepreneurship entities from across the world to discuss international cooperation on scientific and technological development.

Decades ago, people who lived here never imagined that this formerly suburban community of Beijing could command the world’s attention one day, nor could they foresee a national high-tech industrial development zone rising from their farming fields.

Last year, there were 4,244 companies in Zhongguancun with annual revenue exceeding 100 million yuan (US$14.13mil or RM65mil), which is 2.2 times that of 2012. Among them, 11 companies surpassed the trillion-yuan revenue mark.

Over time, Zhongguancun has become a flag-bearer of China’s innovation, bearing witness to the rapid development of Chinese technology, with the continuous emergence of significant sci-tech innovations, increasing investment in research and development, continuous improvement of innovation mechanisms and strengthened international cooperation.

China’s remarkable expertise and extensive experience, combined with its longstanding commitment to technological innovation, position it to make unique contributions to the world by sharing its technological achievements and experience, said Bill Gates, co-chair and trustee of the Bill & Melinda Gates Foundation, at the forum.

Rise of Zhongguancun

From the sparsely populated outskirts of Beijing to an electronics industry cluster in the 1980s, and then to a national-level innovation hub and China’s highland of sci-tech development, Silicon Valley’s Chinese counterpart has emerged as a symbol of innovation and has been dubbed a remarkable chapter in the history of China’s reform and opening up due to its pioneering spirit.

It was not until 1988 that the first privately owned high-tech firm was registered in Zhongguancun.

The enterprise, named Yonyou, obtained the science park’s first private enterprise license, numbered “SY0001.” Over the past decades, Yonyou developed from a two-person software service company into a leading provider of enterprise cloud services.

Wang Wenjing, Yonyou’s chairman and CEO, still remembers this milestone day for Zhongguancun. “That day, I slipped out of the office where I was working to attend the inaugural meeting of Zhongguancun becoming the Beijing New Technology Industry Development Pilot Zone. It was so exciting,” recalled Wang.

In Zhongguancun, a wave of innovations and many “world’s first” breakthroughs have emerged in frontier technological fields in the past decade, while a batch of homegrown sci-tech industry leaders such as Xiaomi, Baidu and BOE are at the forefront of sectors such as smart manufacturing, deep learning, and semiconductor displays.

In Zhongguancun National Independent Innovation Demonstration Zone, the total revenue of enterprises reached 8.7 trillion yuan (RM5.7 trillion) in 2022, which is 3.5 times that of 2012. Value added in 2021 hit 1.3 trillion yuan (RM847bil), marking 3.4-fold growth compared to 2012.

Measures supporting the establishment and development of foreign-invested research and development centres have been introduced in the zone, attracting over 300 multinational companies to set up regional headquarters and research centres. More than 130 Fortune Global 500 companies have established branch offices in the zone.

Riding on the rapid development of Zhongguancun, Beijing has established itself as a crucial hub in the global innovation network, with nearly a hundred universities and over a thousand research institutes, which not only provide support for its own economic and social development but also inject sustained momentum into global progress and development.

Ranking third globally in the number of “unicorn” companies and topping the Nature Index global science city rankings six consecutive times, Beijing has demonstrated its prowess in sci-tech advancements, witnessing the emergence of world-class innovations in fields such as quantum information and artificial intelligence, said Yin Li, a member of the Political Bureau of the Communist Party of China (CPC) Central Committee and secretary of the CPC Beijing Municipal Committee.

As the beating heart of the innovative city, Zhongguancun drove the rapid advancement of Chinese technology and transformed the forum into an international platform for China’s active engagement in global scientific and technological innovation.

“Since its inception in 2007, 13 editions of the ZGC Forum have been held successfully, serving as a vital international platform for China’s active involvement in global scientific and technological innovation, and its extensive participation in global science and technology governance,” said Wu Zhaohui, vice-minister of science and technology.

Shared future

At the peak of a new round of sci-tech revolution and industrial transformation, Beijing gives full play to its strengths in education, science, technologies and talent, coordinates sci-tech and institutional innovation, accelerates the construction of a world-leading sci-tech park, and aims at the leading positions in future-oriented sectors.

Beijing’s efforts in technological innovation are propelling China’s societal transformation and upgrading in various aspects, from people’s lifestyles to business models, from state governance to entertainment, while also providing momentum for global economic and social development.

During the 2020 Zhongguancun Forum, Long Guilu, the deputy-director of the Beijing Academy of Quantum Information Science and a professor at Tsinghua University, unveiled the world’s first practical prototype for direct quantum communication.

At the exhibition area of this year’s ZGC Forum, a myriad of intelligent technological products and applications, including painting robots, surgical robots, robotic butlers, intelligent coal mining and online hospitals, are shaping a promising vision of future life for people from across the globe.

More and more global players in different sectors eye the huge advantages of the Zhongguancun area, and choose to create in China for the world. Among the trendsetters is the French pharmaceutical giant Sanofi.

“China has emerged as Sanofi’s second-largest market and remains a core strategic market, playing a pivotal role in driving future growth,” said Zhu Hailuan, the vice-president of Sanofi Greater China, adding that the company has established an Internet hospital team, and is actively pursuing digital transformation to better address the healthcare needs of Chinese patients.

Speaking to Xinhua, Zhu stated that the company is delighted to see the development of an innovative ecosystem in the field of biotechnology in China, thanks to the growing emphasis on technological innovation by the Chinese government at all levels in recent years.

Zhongguancun’s unleashed innovation potential has also made it a magnet for global scientists and researchers. Xie Xiaoliang, a pioneer of single-molecule biophysical chemistry, coherent Raman scattering microscopy and single-cell genomics, returned to Zhongguancun in 2018 after being a faculty member at Harvard University for two decades.

“Science is the foundation for addressing all kinds of transformations. It is the mission of scientists, as well as the epochal significance of the ZGC Forum, to utilise scientific innovation for the betterment of humanity,” Xie noted — China Daily/ANN 

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Silicon Valley Bank was shut down on Friday morning by California regulators and was put in control of the U.S. Federal Deposit Insurance Corp..

 

 

 

In this photo illustration, Silvergate Capital Corporation

NEW YORK: Last Monday, the head of the Federal Deposit Insurance Corp (FDIC) warned a gathering of bankers in Washington about a US$620bil (RM2.8 trillion) risk lurking in the US financial system.

Last Friday, two banks had succumbed to it. Whether US regulators saw the dangers brewing early enough and took enough action before this week’s collapse of Silvergate Capital Corp and much larger SVB Financial Group is now teed up for a national debate.

SVB’s abrupt demise – the biggest in more than a decade – has left legions of Silicon Valley entrepreneurs in the lurch and livid.

In Washington, politicians are drawing up sides, with Biden administration officials expressing “full confidence” in regulators, even as some watchdogs race to review blueprints for handling past crises.

To his credit, FDIC chair Martin Gruenberg’s speech this week wasn’t the first time he expressed concern that banks’ balance sheets were freighted with low-interest bonds that had lost hundreds of billions of dollars in value amid the Federal Reserve’s rapid rate hikes.

That heightens the risk a bank might fail if withdrawals force it to sell those assets and realise losses.

But despite his concern, the toppling of two California lenders in the midst of a single workweek marked a stark contrast with the years after the 2008 financial crisis, when regulators including the FDIC tidily seized hundreds of failing banks, typically rolling up to their headquarters just after US trading closed on Fridays.

Even in the darkest moments of that era, authorities managed to intervene at Bear Stearns Cos and Lehman Brothers Holdings Inc. while markets were shut for the weekend.

In this case, watchdogs let cryptocurrency-friendly Silvergate limp into another workweek after it warned March 1 that mounting losses may undermine its viability. The bank ultimately said Wednesday it would shut down.

That same day, SVB signalled it needed to shore up its balance sheet, throwing fuel onto fears of a broader crisis.

A deposit run and the bank’s seizure followed. The KBW Bank Index of 24 big lenders suffered its worst week in three years, tumbling 16%.

“With Silvergate there was a little bit of a regulatory blind spot,” said Keith Noreika, who served as acting comptroller of the currency in 2017.

“Because they wound it down mid-week, everyone got a little spooked, thinking this is going to happen to others with similar funding mismatches.”

Representatives for the FDIC and Fed declined to comment.

The drama is already spurring arguments in Washington over the Dodd-Frank regulatory overhaul enacted after the 2008 crisis – as well as its partial rollback under President Donald Trump.

Trump eased oversight of small and regional lenders when he signed a far-reaching measure designed to lower their costs of complying with regulations.

A measure in May 2018 lifted the threshold for being considered systemically important – a label imposing requirements including annual stress testing – to US$250bil (RM1.1 trillion) in assets, up from US$50bil (RM226bil).

SVB had just crested US$50bi (RM226bil) at the time. By early 2022, it swelled to US$220bil (RM994.3bil), ultimately ranking as the 16th-largest US bank.

The lender achieved much of that meteoric growth by mopping up deposits from red-hot tech startups during the pandemic and plowing the money into debt securities in what turned out to be final stretch of rock-bottom rates.

As those ventures later burned through funding and drained their accounts, SVB racked up a US$1.8bil (RM8.1bil) after-tax loss for the first quarter, setting off panic.

“This is a real stress test for Dodd-Frank,” said Betsy Duke, a former Fed governor who later chaired Wells Fargo & Co’s board.

“How will the FDIC resolve the bank under Dodd-Frank requirements? Investors and depositors will be watching everything they do carefully and assessing their own risk of losing access to their funds.”

One thing that might help: SVB was required to have a “living will,” offering regulators a map for winding down operations.

“The confidential resolution plan is going to describe the potential buyers for the bank, the franchise components, the parts of the bank that are important to continue,” said Alexandra Barrage, a former senior FDIC official now at law firm Davis Wright Tremaine.

“Hopefully that resolution plan will aid the FDIC.”

The issues that upended both Silvergate and SVB, including their unusual concentration of deposits from certain types of clients, were “a perfect storm,” she said. That may limit how many other firms face trouble.

One complication is that the Fed has less room to help banks with liquidity, because it’s in the midst of trying to suck cash out of the financial system to fight inflation.

Another is that a generation of bankers and regulators at the helm weren’t in charge during the last period of steep interest-rate increases, raising the prospect they won’t anticipate developments as easily as their predecessors.

Indeed, even bank failures have been rare for a time. SVB’s was the first since 2020.

“We’re seeing the effects of decades of cheap money. Now we have rapidly rising rates,” said Noreika. “Banks haven’t had to worry about that in a long time.” — Bloomberg 

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