• Venezuela to divert barrels from China if US continues easing sanctions
• Putin filmed in China accompanied by officers with Russian nuclear briefcase
• What does America’s bipartisan consensus on China mean for the world? | Podcasts
• Analysis: US throws Nvidia a lifeline while choking off China“s chipmaking future
• China’s economy grows faster than expected as retail sales rise
• China“s Q3 GDP growth, Sept activity show economic recovery gaining traction
• China“s Xi lauds Belt and Road achievements, maps out way forward
• China“s Xi warns against decoupling, lauds Belt and Road at forum
• Shares find muted cheer in China data, Middle East strife lifts oil
• Modernising China’s military
• [Uk] MI5 head warns of 'epic scale' of Chinese espionage
• US accuses China of pattern of ‘dangerous’ air force manoeuvres against military planes
• China’s banks may be loaded up with hidden bad loans | Finance & economics
• Asian shares pare losses on China data, Mid East risk lifts oil
• Five Eyes intelligence chiefs warn on China“s “theft“ of intellectual property
• [World] Watch: Pentagon releases footage of ‘coercive’ Chinese jets
• Xi Jinping to deliver keynote speech at China’s belt and road forum
• Asia frets on Middle East risks, looming China data
• Biden cuts China off from more Nvidia chips, expands curbs to other countries

Venezuela to divert barrels from China if US continues easing sanctions

https://reuters.com/article/venezuela-politics-sanctions-oil/venezuela-to-divert-barrels-from-china-if-us-continues-easing-sanctions-idUSKBN31I1X1

Exemptions to sanctions on Venezuelan oil exports that the U.S. is mulling should not result in a large crude production surge in the OPEC country, instead taking barrels away from its current main destination China, experts said.

The administration of U.S. President Joe Biden plans to provide some broad easing of energy-related sanctions for Venezuela's oil and gas sector almost immediately, a senior U.S. State Department official told Reuters on Wednesday, in response to a deal on guarantees for the 2024 presidential election reached between the Venezuelan government and the country's opposition.

The deal, signed in Barbados on Tuesday, laid out some terms for the election, but did not include the lifting of public office bans on key opposition figures or the release of political detainees.

The same day, Trinidad and Tobago announced the U.S authorized a license amendment clearing the way for a joint gas project with Venezuela.

Venezuela has produced an average 780,000 barrels per day (bpd) of crude so far this year, above the 716,000 bpd of 2022, but still far from an official goal of 1.7 million bpd for 2024.

The Biden administration has been seeking ways to boost global flows of oil to alleviate high prices caused by sanctions on Russia and OPEC+ output cuts. Venezuela's exports are unlikely to offset those cuts absent a big increase in investment, the experts said.

Two decades of mismanagement and insufficient investment, coupled with U.S. oil sanctions since 2019, are expected to stymie state-run PDVSA's ability to make a quick comeback to cash-paying oil markets and offer its crude at fair prices.

The most significant oil license so far granted by Washington as part of its sanction-easing strategy was to Chevron Corp (CVX.N) in November. The company has almost doubled joint output with PDVSA and resumed exports to Venezuela's former main market, the United States.

However, with about 20% of the country's total output, Chevron's joint ventures have been unable to turn around the national industry. PDVSA continues struggling to raise capital, import rigs, repair refineries, advance projects and secure relevant partnerships.

Venezuela's crude output remains at a fraction of the 2.4 million bpd it averaged before U.S. financial and oil sanctions began to be imposed in 2017. Only one drilling rig is active in the country versus more than 80 in 2014, according to Baker Hughes data.

Venezuela needs a long list of items to once again become a relevant oil exporter, according to analysts, including: dozens of drilling rigs, billions of dollars in infrastructure replacements for refineries, flow stations and crude upgraders and a reliable power supply.

OPEC allies have excluded Venezuela from quotas and given the country room to pump more. But experts predict a slow road to recovery as joint venture partners are authorized one-by-one by Washington to expand operations and exports.

Venezuela's oil output is expected to grow by between 170,000 and 200,000 bpd in the next two years if Chevron, Eni (ENI.MI) and Repsol (REP.MC) stick to expansion plans approved by the U.S. since last year, and if Maurel & Prom (MAUP.PA)obtains a similar permit to get debt repaid by exporting Venezuelan crude, said Francisco Monaldi from Rice University's Baker Institute.

Venezuela could also inaugurate gas exports if U.S.-authorized negotiations with Trinidad for joint offshore projects progress.

With U.S. authorizations potentially clearing the way for more exports to the U.S., Europe and the Caribbean, Venezuela is expected to divert a larger portion of its oil currently going to China, the analysts said.

Venezuela's exports to China both directly and through trans-shipments hubs have already fallen to 437,000 bpd so far this year, from 477,000 bpd in 2022, according to vessel monitoring data.

If Venezuela and China reach a pact to resume debt payments and expand joint oil projects, that could add some extra 100,000 bpd of output in the 2-year period, Monaldi added, potentially expanding exports to that destination again.

But with a limited scope for sanctions easing and no fresh investment allowed in the meantime, it is difficult to predict an overall output of more than 1.1 million bpd in the years to come, he said.

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Putin filmed in China accompanied by officers with Russian nuclear briefcase

https://reuters.com/article/china-russia-putin-nuclear/putin-filmed-in-china-accompanied-by-officers-with-russian-nuclear-briefcase-idUSKBN31I0P4

Rare footage was shown on Wednesday of Russian President Vladimir Putin in Beijing accompanied by officers carrying the so-called nuclear briefcase which can be used to order a nuclear strike.

Putin, after a meeting with Chinese President Xi Jinping in Beijing, was filmed walking to another meeting surrounded by security and followed by two Russian naval officers in uniform each carrying a briefcase. The camera zooms in on one of the briefcases.

Russia's nuclear briefcase is traditionally carried by a naval officer. Known as the "Cheget" (named after Mount Cheget in the Caucasus Mountains), the briefcase is with the president at all times but is rarely filmed.

"There are certain suitcases without which no trip of Putin's is complete," the Kremlin correspondents of state news agency RIA said in a post on Telegram under the footage.

In another clip, Putin walks out of a meeting in Beijing with the naval officers again filmed just a few paces from Putin who grins as he walks down some stairs.

The U.S. president also has such a device - called the "nuclear football". The satchel holds the codes the president would use to authenticate an order to launch nuclear missiles should he or she not be at the White House.

The Ukraine war has raised tensions between Moscow and Washington to the highest level since the 1962 Cuban Missile Crisis just as China seeks to bolster its nuclear arsenal to accord with its status as an emerging superpower.

Russia's parliament took the first step on Tuesday towards revoking ratification of the Comprehensive Nuclear Test Ban Treaty and its top lawmaker warned the United States that Moscow might even abandon the pact altogether.

Essentially, the briefcase is a secure communication tool that links the president to his military top brass and thence to rocket forces via the highly secret "Kazbek" electronic command-and-control network. Kazbek supports another system known as "Kavkaz".

The Russian defence minister, currently Sergei Shoigu, also has a nuclear briefcase. The chief of the general staff, currently Valery Gerasimov, may also have one.

Footage shown by Russia's Zvezda television channel in 2019 showed what it said was one of the briefcases with an array of buttons.

In a section called "command" there are two buttons: a white "launch" button and a red "cancel" button. The briefcase is activated by a special flashcard, according to Zvezda.

One of the nuclear briefcases used by former Russian President Boris Yeltsin is displayed in the Yeltsin Museum in Yekaterinburg.

Putin is visiting Beijing on his second known trip outside the former Soviet Union since the Ukraine war began in February 2022.

Related Galleries:

What does America’s bipartisan consensus on China mean for the world? | Podcasts

https://www.economist.com/podcasts/2023/10/17/what-does-americas-bipartisan-consensus-on-china-mean-for-the-world

Sign up for Economist Podcasts+ now and get 50% off your subscription with our limited time offer. You will not be charged until Economist Podcasts+ launches*

At a time when Republicans and Democrats agree on very little, there is striking unity in DC about China. This week, we return to David Rennie in Washington DC, where he talks to senators and congressmen at the heart of China policymaking. We hear what brings the two parties together on China, and find out if this bipartisan consensus is as solid as it looks.

David Rennie, The Economist’s Beijing bureau chief, and Alice Su, our senior China correspondent, host. They speak to Mike Gallagher, the Republican chair of the House of Representatives’ China Select Committee and Chris Coons, a Democratic senator. Runtime: 31 min

*If you’re already a subscriber to The Economist, you’ll have full access to all our shows as part of your subscription. For more information about Economist Podcasts+, including how to get access, please visit our FAQs page.

Analysis: US throws Nvidia a lifeline while choking off China“s chipmaking future

https://reuters.com/article/usa-china-chips-companies/analysis-us-throws-nvidia-a-lifeline-while-choking-off-chinas-chipmakingfuture-idUSKBN31I0JF

While stripping China's access to key U.S. artificial intelligence chips, the Biden administration's sweeping new rules also quietly threw Nvidia (NVDA.O), Intel (INTC.O) and Advanced Micro Devices (AMD) (AMD.O) a potential lifeline to preserve lucrative business in one of the world's biggest chip markets.

Buried deep in more than 400 pages of rules issued on Tuesday, officials at the U.S. Bureau of Industry and Security (BIS) said they are open to the semiconductor industry's input for finding ways to keep sending AI chips to China for small and medium-sized systems.

The rules were designed to curtail China's ability to exploit American chips to build massive supercomputers that can be used to create technologies similar to OpenAI's ChatGPT and could also be used for military purposes, officials said.

Thomas Krueger, a former U.S. National Security Council export control official, said "the organizing principle for all these rules is to keep them focused on those capabilities that can enable Chinese military systems. They're not interested in going after broad consumer applications. They're really trying to thread that needle."

U.S. officials asked for input in devising a "tamperproof" way to keep systems that might contain up to 256 AI chips from being strung together into a supercomputer.

"This approach could constrain (controlled AI chips) from being used to train large dual-use AI foundation models with capabilities of concern, while allowing AI training capabilities at a small or medium scale," the BIS wrote.

Nvidia, Intel and AMD declined to comment. Nvidia shares closed down 4.67% on Tuesday after the new rules were announced.

The other primary gift that U.S. officials gave Nvidia, Intel and AMD was hobbling their most capable Chinese competitors.

New rules will make it nearly impossible for Moore Threads and Biren, two well-funded Chinese startups founded by Nvidia veterans, to have their designs manufactured using cutting-edge chipmaking technology.

That means whatever Nvidia is able to sell to China will likely be Chinese buyers' best legal option.

"Our assumption is that (Nvidia) will quickly redesign a chip to meet new standards with relatively immaterial disruptions to the current business outlook," analysts at investment bank Piper Sandler wrote in a note to clients.

As part of the new rules published on Tuesday that take effect in 30 days, U.S. officials targeted China's chip manufacturers by restricting the export of advanced chipmaking equipment known as immersion deep ultraviolet (DUV) lithography machines if they contain any American parts.

"What they're really doing is closing all the doors," TechInsights analyst Dan Hutcheson said, adding the new rules close off a substantial amount of potential future developments. "They're basically trying to future-proof the document."

The DUV machines are not produced by any American toolmakers, but are made by Japan's Nikon (7731.T) and the Netherlands' ASML (ASML.AS).

The DUV rules announced on Tuesday codified diplomatic work between the U.S., Japan and the Netherlands to institute similar controls on sending the machines to China, said Clete Willems, a trade and policy attorney with Akin Gump.

While immersion DUV machines cannot product cutting-edge chips, they can come close and are likely what was recently used by Huawei's chip manufacturing partners to create a new smartphone chip for its Mate 60 Pro, according to analysts.

"This control alone will constrain China’s ability to expand advanced node semiconductor manufacturing for many years," said Gregory Allen, a director at the Center for Strategic and International Studies.

"If spare parts and components for the equipment can be effectively controlled, the new regulations may degrade the advanced node manufacturing facilities that China currently has in operation."

Instead of the broad swaths of tools blocked by last year's export restrictions, officials on Tuesday narrowed them to target specific technologies and techniques found in the complex machines needed to build advanced transistor designs, according to David Kanter, President of Real World Insights.

By narrowing the equipment that is blocked, the rules allow the toolmakers to sell equipment that is made to build much older chips without fear of running afoul of the government restrictions.

---

China’s economy grows faster than expected as retail sales rise

https://www.theguardian.com/business/2023/oct/18/china-economy-grows-retail-sales-rise-property

China’s economy grew at a faster than expected rate in the third quarter, suggesting the recent flurry of policy measures is helping to bolster a tentative recovery in the world’s second-biggest economy.

Rapidly weakening growth in China since the second quarter has prompted authorities to step up support, with Wednesday’s data indicating the stimulus is starting to gain traction, although a property crisis and other problems continue to pose risks.

Gross domestic product (GDP) grew 4.9% in July-September from a year earlier, data released by the National Bureau of Statistics showed, compared with analysts’ expectations for a 4.4% increase but slower than the 6.3% expansion in the second quarter.

On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter and above the forecast for growth of 1%. Consumption and industrial activity in September was also better than expected.

Beijing has in recent weeks launched a raft of measures, but its ability to spur growth has been hamstrung by fears over debt risks and a fragile yuan, which has been hit hard this year due to widening yield differentials as global interest rates remain elevated, led by the US Federal Reserve’s tightening campaign.

“It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment,” Matt Simpson, a senior market analyst at City Index in Brisbane, said.

The government is walking a tightrope as it tries to restore economic equilibrium. Policymakers are having to navigate a domestic property crisis, depressed private sector confidence, a slowdown in global growth and tensions with the US over trade, technology and geopolitics.


The recovery momentum suggests the government’s full-year 2023 growth target of about 5% is likely to be achieved.

Industrial output in September grew a stronger than expected 4.5% from a year earlier, but the pace was unchanged from August, according to the separate data. Retail sales, a gauge of consumption, also beat expectations, rising 5.5% last month.

But a deepening downturn in the property sector, which accounts for nearly a quarter of economic output, poses a big challenge to policymakers as they seek to keep growth on track, analysts said.

The latest data underlined those worries. Property investment in the first nine months of 2023 fell by 9.1% from a year earlier, after slumping 8.8% in January-August.

The faltering sector has hit some of the biggest real estate firms in the country including Country Garden, China’s biggest private property developer.

“In the grand scheme of things, I don’t think individual developers running into further financial turbulence will be enough to derail things. The problems of the developers have been known to the market for some while now,” Frederic Neumann, the chief Asia economist and co-head of global research at HSBC, said.

The International Monetary Fund on Wednesday downgraded its 2023 and 2024 growth forecasts for China, saying the property slowdown could cause the country’s GDP to decline.

China“s Q3 GDP growth, Sept activity show economic recovery gaining traction

https://reuters.com/article/china-economy-gdp/chinas-q3-gdp-growth-sept-activity-show-economic-recovery-gaining-traction-idUSKBN31I04P

China's economy grew at a faster-than-expected clip in the third quarter, while consumption and industrial activity in September also surprised on the upside, suggesting the recent flurry of policy measures is helping to bolster a tentative recovery.

Rapidly weakening growth in the world's second-biggest economy since the second quarter prompted authorities to step up their support steps, with Wednesday's batch of data indicating the stimulus is starting to gain traction although a property crisis and other headwinds continue to pose risks to the outlook.

Gross domestic product (GDP) grew 4.9% in July-September from the year earlier, data released by the National Bureau of Statistics showed, versus analysts' expectations in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the second quarter.

On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter and above the forecast for growth of 1.0%.

"It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment," said Matt Simpson, senior market analyst at City Index in Brisbane.

The government is walking a tight rope as it tries to restore economic equilibrium, with policymakers having to navigate a domestic property crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth and Sino-U.S. tensions over trade, technology and geopolitics.

Beijing has in recent weeks unveiled a raft of measures, but its ability to spur growth has been hamstrung by fears over debt risks and a fragile yuan, which has been hit hard this year due to widening yield differentials as global interest rates remain elevated, led by the Federal Reserve's tightening campaign.

Asian stocks pared their losses after the better-than-expected China data, while the yuan and trade-dependent Australian and New Zealand dollars all bounced. The yuan hit a one-week high of 7.2905 per dollar.

The recovery momentum suggests the government's full year 2023 growth target of around 5.0% is likely to be achieved.

"The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4, as the growth target of 5% is set to be achieved," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place."

The statistics bureau said China would be able to hit the 2023 growth target if the fourth quarter growth tops 4.4%.

Industrial output in September grew a stronger than expected 4.5% from a year earlier, but the pace was unchanged from August, according to the separate data. Analysts had expected a 4.3% increase.

Growth of retail sales, a gauge of consumption, also beat expectations, rising 5.5% last month, and accelerating from a 4.6% increase in August. Analysts had expected retail sales to expand 4.9%.

Fixed asset investment grew 3.1% in the first nine months of 2023 from the same period a year earlier, versus expectations for a 3.2% rise. It expanded 3.2% in the January-August period.

But a deepening downturn in the property sector, which accounts for nearly a quarter of economic output, poses a big challenge to policymakers as they seek to keep growth on track, analysts said.

The latest data underlined those worries. Property investment in the first nine months of 2023 fell by 9.1% from a year earlier, after slumping 8.8% in January-August. Fixed-asset investment by private firms fell 0.6% in January-September year-on-year, highlighting weak private sector confidence.

The faltering property sector has hit some of the biggest developers in the country.

A grace period for a $15 million coupon payment by Country Garden Holdings (2007.HK), China's biggest private property developer, expired earlier in the day, fuelling fears that it had defaulted on its offshore debt.

"In the grand scheme of things, I don’t think individual developers running into further financial turbulence will be enough to derail things. The problems of the developers have been known to the market for some while now," said Frederic Neumann, chief Asia economist and co-head of Global Research at HSBC.

All the same, efforts by policymakers to support big cities have failed to bolster confidence, underscoring the depth of the problems in the industry which slumped into a crisis two years ago.

"In the near-term, our expectations are still for a further round of 10bp rate cuts in Q4 from the PBOC, a step-up in the easing of homebuying restrictions, and modest increases in state-directed infrastructure spending," said Louise Loo, China economist at Oxford Economics, in a note.

The International Monetary Fund on Wednesday downgraded its 2023 and 2024 growth forecasts for the Asian giant, saying the property slowdown could cause China's GDP to decline.

China“s Xi lauds Belt and Road achievements, maps out way forward

https://reuters.com/article/china-bri/chinas-xi-lauds-belt-and-road-achievements-maps-out-way-forward-idUSKBN31I078

Chinese President Xi Jinping opened the Belt and Road Forum in Beijing on Wednesday declaring that "blueprints turned into real projects" during the decade since he launch his initiative to build global infrastructure and energy networks.

Representatives of more than 130 countries, largely from the Global South, attended the forum including more than two dozen heads of state, or whom the most prominent was Xi's "dear friend" Russian President Vladimir Putin.

Addressing more than 1,000 Chinese and foreign delegates assembled in an ornate conference room in the Great Hall of the People west of Tiananmen Square, Xi said his flagship policy had

"boosted the flow of goods, capital, technology and human resources into the countries involved."

Putin and other foreign leaders sat with key Chinese officials from the 25-member Politburo on the front row, as Xi delivered his opening speech.

The forum centres on the Belt and Road Initiative (BRI), a grand plan launched by Xi in 2013, that envisioned building global infrastructure and energy networks connecting Asia with Africa and Europe through overland and maritime routes.

Although BRI at first set out to connect China to Western Europe, senior EU figures were missing. The sole head of state present from the bloc was Hungary's populist President Viktor Orban. Other notable attendees included the Afghan Taliban administration's commerce minister Haji Nooruddin Azizi.

Western scepticism of Xi's grand plans stems from suspicions over the way it would extend China's global influence, analysts say.

China has at times bristled at criticism of the BRI, saying it carries anti-Chinese prejudice and a wish to contain its rise, while overlooking what it says are genuine good intentions.

The BRI's original scale and ambition have been impacted by shocks, including a trade war with the United States, economic slowdown in China, Russia's invasion of Ukraine, and the pandemic.

Xi is pushing to make the Belt and Road smaller and greener, moving away from big-ticket projects like dams to high-tech ones such as digital finance and e-commerce platforms.

The aim is to aid a broader push for a world order that is multi-polar and gives the Global South more agency, rather than one dominated by Washington and its allies, analysts say.

The BRI has also become more focused on issues such as climate change and artificial intelligence, as Xi seeks to use it to export Chinese ideas about governance and build consensus around Chinese norms and its development model, analysts say.

Related Galleries:

China“s Xi warns against decoupling, lauds Belt and Road at forum

https://reuters.com/article/china-bri/chinas-xi-warns-against-decoupling-lauds-belt-and-road-at-forum-idUSKBN31I078

Chinese President Xi Jinping warned against decoupling from China as he opened the Belt and Road Initiative (BRI) forum in Beijing on Wednesday, criticizing Western efforts to reduce dependence on the Chinese economy.

Xi also lauded his grand plan launched 10 years ago of building global infrastructure and energy networks connecting Asia with Africa and Europe through overland and maritime routes, saying that "blueprints turned into real projects".

Representatives of more than 130 countries, largely from the Global South, attended the forum including several heads of state, of whom the most prominent was Xi's "dear friend" Russian President Vladimir Putin.

"We stand against unilateral sanctions, economic coercion, decoupling and supply chain disruption," Xi told more than 1,000 delegates gathered in an ornate conference room in the Great Hall of the People west of Tiananmen Square.

Putin and other foreign leaders sat with key Chinese officials from the 25-member Politburo on the front row, as Xi delivered his opening remarks.

Xi pushed against Western efforts to reduce dependence on Chinese economy, saying that, "our lives will not be better and our development will not be faster if we view the development of others as a threat and economic interdependence as a risk."

Reducing their dependence on supply chains with China has become a top priority among Western economies as Beijing's threats to Taiwan heighten geopolitical risks in Asia. The trade disruptions of the pandemic years have also added urgency to the desire to limit their dependence on China.

Although BRI at first set out to connect China to Western Europe, senior EU figures were missing. The sole head of state present from the bloc was Hungary's populist President Viktor Orban. Other notable attendees included the Afghan Taliban administration's commerce minister Haji Nooruddin Azizi.

"China has more interest right now in developing Afghanistan at this moment, so we are more engaged with China. The Chinese have more interest in economic affairs, that's why we're here," Azizi told a gaggle of reporters at the ceremony.

Western scepticism of Xi's grand plans stems from suspicions over the way it would extend China's global influence, analysts say. China has at times bristled at criticism of the BRI, saying it carries anti-Chinese prejudice and a wish to contain its rise, while overlooking what it says are genuine good intentions.

In an address that followed Xi's, Putin praised the BRI and invited global investment in the Northern Sea route which he said could deepen trade between east and west. Several European officials left the hall as Putin took to the stage.

Xi is making the Belt and Road smaller and greener, moving away from big-ticket projects like dams to high-tech ones such as digital finance and e-commerce platforms.

The aim is to aid a broader push for a world order that is multi-polar and gives the Global South more agency, rather than one dominated by Washington and its allies, analysts say.

The BRI has also become more focused on issues such as climate change and artificial intelligence, as Xi seeks to use it to export Chinese ideas about governance and build consensus around Chinese norms and its development model, analysts say.

On Wednesday, Xi reinforced those trends, pledging to "deepen cooperation in green infrastructure, energy and transportation," and "put forward global initiative for artificial intelligence governance."

A European business representative, who did not want to be named for sensitivity reasons, said on the sidelines of the ceremony that BRI was, "creating impact for some of the countries involved" and that, "I think there is some truth to some of the speeches about improving livelihood and connectivity."

Related Galleries:

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Shares find muted cheer in China data, Middle East strife lifts oil

https://reuters.com/article/global-markets/shares-find-muted-cheer-in-china-data-middle-east-strife-lifts-oil-idUSKBN31I00R

Asian shares steadied on Wednesday as Chinese economic data suggested Beijing's stimulus measures might finally be gaining traction, only to be overshadowed by fears of a widening conflict in the Middle East that lifted oil prices.

Global bond markets were also still nursing heavy losses as strong U.S. retail data argued for a punishingly long stretch of high rates.

The outlook for the world economy did seem to take a turn for the better as China reported annual economic growth of 4.9% in the third quarter, beating forecasts for 4.4%.

Retail sales and industrial output for September surprised on the upside, suggesting activity was gaining momentum. That could not stop Chinese blue chips (.CSi300) slipping 0.5% as cautioned gripped markets.

The mood had been darkened as Israeli and Palestinian authorities traded blame for the blast that killed hundreds at a Gaza hospital, complicating U.S. President Joe Biden's already fraught trip to the region.

The news contributed to a spike in oil prices as investors worried Iran or other nations could get pulled in.

"We judge the risks are tilted towards escalation and spread of the Israel-Hamas conflict to other countries in the Middle East," warned analysts at CBA in a note. "A major spike in volatility and a downgrade of the global economic growth outlook is possible."

The sober mood left MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) 0.1% lower, while Japan's Nikkei (.N225) dipped 0.2%.

EUROSTOXX 50 futures and FTSE futures were both flat. S&P 500 futures eased 0.2% and Nasdaq futures 0.1%.

Tech stocks were dragged in part by a drop in Nvidia (NVDA.O) after news the Biden administration plans to halt shipments to China of more of its advanced artificial intelligence chips.

Markets are now anxiously awaiting earnings from Netflix (NFLX.O) and Tesla (TSLA.O) later in the session.

Stocks were also pressured by a jump in bond yields after a barnstorming report on September U.S retail sales sent analysts scurrying to revise up forecasts for economic growth for both the third and fourth quarters.

JPMorgan jacked its growth call up to an annualised 4.3%, from 3.5%, while the influential Atlanta Fed GDPNow prediction jumped to a heady 5.4%.

Markets reacted by pricing in more risk the Federal Reserve will be forced to hike again. A move in November is still seen as just an 11% chance, but January climbed to 50% from 37%.

The market also again scaled back expectations for early rate cuts, with no chance of a move until June and around 54 basis points of easing implied for all of 2024.

Bonds took it badly, with two-year yields surging as much as 14 basis points on Tuesday to a 16-year peak of 5.24%. The two-year was last at 5.20%, while 10-year yields were back near recent highs at 4.84%.

The surge rippled through world bonds, with the Bank of Japan forced to conduct an unscheduled operation to buy JGBs to restrain a rise in yields.

More Fed comments are likely on Wednesday with no less than five officials speaking, ahead of an appearance by Chair Jerome Powell on Thursday.

The rise in yields underpinned the U.S. dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.69 to again threaten major resistance at 150.00.

The euro eased back a touch to $1.0573 , having been as high as $1.0595 on Tuesday.

Safe-haven flows lifted gold 0.7% to $1,938 an ounce , well above its recent trough of $1,809.

Oil prices swung higher once more, driven by concerns over the Middle East and data showing a fall in crude stocks.

Brent climbed $1.76 to $91.66 a barrel, while U.S. crude rose $1.91 to $88.57 per barrel.

Modernising China’s military

https://www.scmp.com/news/china/military/series/3238333/modernising-chinas-military?utm_source=rss_feed

[Uk] MI5 head warns of 'epic scale' of Chinese espionage

https://www.bbc.co.uk/news/uk-67142161?at_medium=RSS&at_campaign=KARANGA

US accuses China of pattern of ‘dangerous’ air force manoeuvres against military planes

https://www.theguardian.com/us-news/2023/oct/18/us-accuses-china-of-pattern-of-dangerous-air-force-manoeuvres-against-military-planes

The US has accused China of orchestrating a “concerted” campaign of dangerous and provocative air force manoeuvres against US military planes in international airspace, warning it could spark an inadvertent conflict between them.

The Pentagon said aggressive tactics by Chinese aircraft had threatened US planes flying over the East and South China Sea regions, tallying more than 180 such incidents since autumn 2021.

“That’s nearly 200 cases where (Chinese) operators have … discharged chaff or shot off flares or approached too rapidly or close to US aircraft,” said Ely Ratner, assistant secretary of defence for Indo-Pacific security affairs.

“More in the past two years than in the decade before that,” he added.

US-China relations are at their lowest point in years, with tension over a range of issues including trade, human rights, Taiwan and the South China Sea.

“This type of operational behaviour can cause accidents, and dangerous accidents can lead to inadvertent conflict,” Ratner said, adding that the incident count, tallied since the autumn of 2021, increases to nearly 300 when US allies are included.

Ratner alleged there was an intentional campaign by Beijing “to perform these risky behaviours in order to coerce a change in lawful US operational activity”.

In one instance, Ratner said, a Chinese fighter plane “approached our asset at a speed of hundreds of miles per hour, clearly armed and closing to just 30 feet away”, and stayed there for more than 15 minutes.

Tuesday’s news conference came after previous warnings from the White House over the summer that Chinese military aggressiveness at sea and in the air was leading to near collisions, and could soon lead to casualties.

“It won’t be long before somebody gets hurt,” national security council spokesperson John Kirby told reporters in June.

The US warning on Tuesday came as Canada separately accused Beijing’s fighter jets of a “reckless” intercept of a Canadian maritime patrol aircraft. Chinese planes shadowed the Aurora aircraft – on a mission to enforce UN sanctions against North Korea – over several hours according to a Canadian television crew on the flight.

One came within five metres of the Canadian plane, in a move Canada’s defence minister Bill Blair called “unprofessional”.

On Tuesday Beijing hit back, accusing the plane of having “illegally intruded into the airspace” of Chiwei island, which lies in the Japan-administered Senkakus claimed by China.

“The Canadian military aircraft travelled thousands of miles to make trouble and provocation at China’s doorstep,” foreign ministry spokesperson Mao Ning said. “The Chinese side dealt with it according to law and regulations.”

Relations between Canada and China hit new lows this year following accusations of Chinese meddling in Canadian elections and the attempted intimidation of MPs, leading to the expulsion of a Chinese diplomat in May.

---

China’s banks may be loaded up with hidden bad loans | Finance & economics

https://www.economist.com/finance-and-economics/2023/10/15/chinas-banks-may-be-loaded-up-with-hidden-bad-loans

When jinzhou bank, in north-eastern China, showed signs of distress at the start of the year, state media suggested that a billionaire named Li Hejun might be behind its problems. Mr Li, a solar-panel tycoon, was once China’s richest man. His firm was known to have tight links to the bank. And it was not long after word spread that he had been arrested that Jinzhou Bank suspended trading in its shares and told investors it would restructure its operations.

Oddly, the bank’s finances look to have been in good shape. Its overall bad-debt level was low in the first half of 2022, the last period for which detailed information is available. Although one concerning figure sticks out—more than 50% of its personal-business loans had become non-performing—this type of loan comprised just 1% of its total. Small- and micro-enterprise loans, which make up about half of the bank’s loan book, appeared normal, with only 3% having gone sour.

But is this the whole story? In theory, there is no meaningful distinction between personal-business loans and small- and micro-enterprise loans, says Jason Bedford, a veteran banking analyst. The two types are used in similar ways and should offer similar risk. In practice, though, there is a crucial difference: small- and micro-enterprise loans remain covered by a covid-era moratorium allowing banks to avoid recognising bad debts. Thus it is possible that a large portion of Jinzhou’s lending book is unrecognised bad debt. The bank has said almost nothing about its condition since earlier this year.

If hidden bad debts such as these lurk at Jinzhou Bank, they may lurk elsewhere, too. This is a worrying prospect, for Chinese finance is already beset by problems. Local governments are struggling to repay lenders at least 65trn yuan ($9trn) in off-balance-sheet debts. Many of the country’s largest property developers have already defaulted on offshore bonds and owe trillions of yuan-worth of unbuilt homes to local residents. China’s largest wealth-management firms have started to default on payments owed to investors. Given that these types of hidden debts have so far attracted little attention, Jinzhou’s troubles ought to come as a warning.

Problems with loans to the smallest companies began with the onset of covid-19. As China’s economy shut down in January 2020, the central bank put a moratorium on the repayment of loans for small- and micro-enterprises until June that year in order to halt a wave of defaults. After less than three months of the policy, officials estimated that about 700bn yuan in payments had been deferred. The moratorium has been extended several times since then, with officials citing the continued impact of covid. No estimate for the total amount of unpaid loans exists and banks will not be required to disclose them publicly until next year.

The moratorium has also coincided with another state initiative. In order to stimulate the economy, the central government has leaned on banks to extend loans to the smallest firms, and to do so at the lowest possible interest rates. Although such policies have been tried for years, banks have been resistant, preferring to lend to the large, often state-owned firms with which they have relationships already. This time the policy has worked, however. A crackdown on the banking industry, culminating in the arrest of the president of one of China’s largest commercial banks last year, has made bosses more willing to follow official edicts.

As a result, at the beginning of the year about 28% of all loans in China had been given to small- and micro-enterprises, up from 24% at the end of 2019. Many of these loans represent simply the renewal of older, unpaid debts. It is well known that small firms struggled during the pandemic. Despite this, there has hardly been an uptick in non-performing loans, notes Alicia Garcia Herrero of Natixis, a bank.

Another result has been what some analysts view as a catastrophic mispricing of assets. Small firms are usually judged to pose the greatest risks, but loans to small- and micro-enterprises have nevertheless been provided at rock-bottom interest rates. Banks have offered them at an average of 4% annual interest, down from 6% or so in 2019. To make matters worse, a recent surge in long-term deposits, which are remunerated at higher rates, means banks’ margins have been squeezed even tighter.

Only a few lenders have hinted at the amount of loans they have deferred. Minsheng Bank, one of China’s largest, said in its mid-term report last year that it had provided 212bn yuan in renewed loans and deferred payments in the previous six months, equivalent to 9% or so of its entire corporate-loan book. Since then, it has declined to make similar disclosures. The central bank is providing funds to banks, which can be used to support specific parts of the economy. In a recent report it said that it had handed out 2.7trn yuan in loans for small firms in the first half of this year.

Any loan moratorium comes with a gamble: that a short period of forgiveness and renewal will allow struggling companies to get back on their feet after an economic shock. The initial decision may have saved tens of thousands of companies and even a few banks from going under. Now the fate of the murky pile of debt—however big it might be—depends on China’s economic fortunes over the coming months. Although the purchasing-managers’ index for manufacturers shows that the outlook for large companies has improved slightly in recent months, the one for small and medium-sized companies has continued to contract. The economic hangover from the covid era has lingered. It could now be about to intensify. ■

Asian shares pare losses on China data, Mid East risk lifts oil

https://reuters.com/article/global-markets/asian-shares-pare-losses-on-china-data-mid-east-risk-lifts-oil-idUSKBN31I00R

Asian shares steadied on Wednesday after Chinese economic data suggested Beijing's stimulus measures might finally be gaining traction, though a blast at a Gaza hospital dealt a blow to hopes for containing the conflict there.

Global bond markets also still nursed heavy losses as strong U.S. retail data argued for a punishingly long stretch of high rates.

The outlook for the world economy did take a small turn for the better as China reported annual economic growth of 4.9% in the third quarter, beating forecasts for 4.4%.

Retail sales and industrial output for September also surprised on the upside, suggesting activity had been gaining momentum.

That helped Chinese blue chips (.CSi300) pare early losses to be down 0.2%, though the initial reaction was muted overall.

The mood had been darkened as Israeli and Palestinian authorities traded blame for the blast that killed hundreds at a Gaza hospital, complicating U.S. President Joe Biden's already fraught trip to the region.

The news contributed to a spike in oil prices as investors worried Iran or other nations could get pulled in.

"We judge the risks are tilted towards escalation and spread of the Israel-Hamas conflict to other countries in the Middle East," warned analysts at CBA in a note. "A major spike in volatility and a downgrade of the global economic growth outlook is possible."

The cautious mood left MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) a shade lower, while Japan's Nikkei (.N225) dipped 0.2%.

EUROSTOXX 50 futures slipped 0.2%, while FTSE futures were flat. S&P 500 futures and Nasdaq futures both eased 0.2%.

Tech stocks were dragged in part by a drop in Nvidia (NVDA.O) after news the Biden administration plans to halt shipments to China of more of its advanced artificial intelligence chips.

Markets are now anxiously awaiting earnings from Netflix (NFLX.O) and Tesla (TSLA.O) later in the session.

Stocks were also pressured by a jump in bond yields after a barnstorming report on September U.S retail sales sent analysts scurrying to revise up forecasts for economic growth for both the third and fourth quarters.

JPMorgan jacked its growth call up to an annualised 4.3%, from 3.5%, while the influential Atlanta Fed GDPNow prediction jumped to a heady 5.4%.

Markets reacted by pricing in more risk the Federal Reserve will be forced to hike again. A move in November is still seen as just an 11% chance, but January climbed to 50% from 37%.

The market also again scaled back expectations for early rate cuts, with no chance of a move until June and around 54 basis points of easing implied for all of 2024.

Bonds took it badly, with two-year yields surging as much as 14 basis points on Tuesday to a 16-year peak of 5.24%. The two-year was last at 5.20%, while 10-year yields were back near recent highs at 4.84%.

The surge rippled through world bonds, with the Bank of Japan forced to conduct an unscheduled operation to buy JGBs to restrain a rise in yields.

More Fed comments are likely on Wednesday with no less than five officials speaking, ahead of an appearance by Chair Jerome Powell on Thursday.

The rise in yields underpinned the U.S. dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.74 to again threaten major resistance at 150.00.

The euro eased back a touch to $1.0573 , having been as high as $1.0595 on Tuesday.

Safe-haven flows lifted gold 0.9% to $1,940 an ounce , well above its recent trough of $1,809.

Oil prices swung higher once more, driven by concerns over the Middle East and data showing a fall in crude stocks.

Brent climbed $2.16 to $92.06 a barrel, while U.S. crude rose $2.30 to $88.96 per barrel.

Five Eyes intelligence chiefs warn on China“s “theft“ of intellectual property

https://reuters.com/article/usa-cyber-china/five-eyes-intelligence-chiefs-warn-on-chinas-theft-of-intellectual-property-idUSKBN31I06U

The Five Eyes countries' intelligence chiefs came together on Tuesday to accuse China of intellectual property theft and using artificial intelligence for hacking and spying against the nations, in a rare joint statement by the allies.

The officials from the United States, Britain, Canada, Australia and New Zealand - known as the Five Eyes intelligence sharing network - made the comments following meetings with private companies in the U.S. innovation hub Silicon Valley.

U.S. FBI Director Christopher Wray said the "unprecedented" joint call was meant to confront the "unprecedented threat" China poses to innovation across the world.

From quantum technology and robotics to biotechnology and artificial intelligence, China was stealing secrets in various sectors, the officials said.

"China has long targeted businesses with a web of techniques all at once: cyber intrusions, human intelligence operations, seemingly innocuous corporate investments and transactions," Wray said. "Every strand of that web had become more brazen, and more dangerous."

In response, Chinese government spokesman Liu Pengyu said the country was committed to intellectual property protection.

"We firmly oppose to the groundless allegations and smears towards China and hope the relevant parties can view China’s development objectively and fairly," the spokesperson for China's embassy in Washington said in a statement to Reuters.

The U.S. has long accused China of intellectual property theft and the issue has been a key sore point in U.S.-China relations. But this is the first time the Five Eyes members have joined publicly to call out China on it.

"The Chinese government is engaged in the most sustained scaled and sophisticated theft of intellectual property and expertise in human history," said Mike Burgess, the Australian Security Intelligence Organisation's director-general.

While China's intention to innovate for its own national interest was "fine and entirely appropriate", Burgess said "the behaviour we're talking about here goes well beyond traditional espionage."

Last month, his department busted a Chinese plot to infiltrate a prestigious Australian research institution that involved planting an academic there to steal secrets, he said.

"This sort of thing is happening every day in Australia, as it is in the countries here," Burgess said.

The Five Eyes statement follows the group's warning in May of a widespread Chinese spy operation it said was targeting critical infrastructure and various other sectors.

The Chinese government dismissed those allegations as a "collective disinformation campaign."

Wray said China had "a bigger hacking program than that of every other major nation combined" that together with Beijing's physical spies and stealing of trade secrets from private businesses and research institutions gave the country enormous power.

"Part of what makes it so challenging is all of those tools deployed in tandem, at a scale the likes of which we've never seen," Wray said.

The officials called for private industry and academia to help in countering those threats, chief among which they said were artificial intelligence tools.

"We worry about AI as an amplifier for all sorts of misconduct," Wray said, accusing China of stealing more personal and corporate data than any other nation by orders of magnitude.

"If you think about what AI can do to help leverage that data to take what's already the largest hacking program in the world by a country mile, and make it that much more effective - that's what we're worried about," he said.

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[World] Watch: Pentagon releases footage of ‘coercive’ Chinese jets

https://www.bbc.co.uk/news/world-asia-67142194?at_medium=RSS&at_campaign=KARANGAThe declassified videos show PLA fighter jets coming close to US aircraft in international airspace.

Xi Jinping to deliver keynote speech at China’s belt and road forum

https://www.scmp.com/news/china/diplomacy/article/3238307/xi-jinping-deliver-keynote-speech-chinas-belt-and-road-forum?utm_source=rss_feed

This blog has been made freely available as a public service to our readers. Please consider supporting SCMP’s journalism by .

Chinese President Xi Jinping’s address at Wednesday’s opening ceremony of the Belt and Road Forum for International Cooperation will be closely watched for any new light he may shed on the future of the global infrastructure initiative.

Representatives from 140 countries and 30 global organisations are attending the forum, which marks the 10th anniversary of the Belt and Road Initiative. Among them is Russia’s President Vladimir Putin, who will speak after Xi, as well as leaders and businesspeople from across the developing world.

The forum is also intended to position China as a leader among less developed countries and as a global power.

Follow our live blog as the Post’s reporting team brings you Xi’s speech.

Asia frets on Middle East risks, looming China data

https://reuters.com/article/global-markets/asia-frets-on-middle-east-risks-looming-china-data-idUSKBN31I00R

Asian shares stuttered on Wednesday as a blast at a Gaza hospital dealt a blow to hopes for containing the crisis, while bonds nursed heavy losses as strong U.S. retail data argued for a punishingly long stretch of high rates.

Israeli and Palestinian authorities were trading blame for the blast that killed hundreds at the hospital, complicating U.S. President Joe Biden's already fraught trip to the region.

The news contributed to a spike in oil prices as investors worried Iran or other nations could get pulled into the conflict.

"We judge the risks are tilted towards escalation and spread of the Israel-Hamas conflict to other countries in the Middle East," warned analysts at CBA in a note. "A major spike in volatility and a downgrade of the global economic growth outlook is possible."

The threat to the global economy comes just as China is set to release data likely showing annual economic growth slowed sharply in the third quarter to around 4.4%.

Figures for retail sales and industrial output for September will also offer insight into whether activity is finally responding to Beijing's recent stimulus measures.

The cautious mood left MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) a shade lower, while Japan's Nikkei (.N225) dipped 0.1%.

S&P 500 futures and Nasdaq futures both eased 0.2% in early trade.

They were dragged in part by a drop in Nvidia (NVDA.O) after news the Biden administration plans to halt shipments to China of more of its advanced artificial intelligence chips.

Markets are now anxiously awaiting earnings from Netflix (NFLX.O) and Tesla (TSLA.O) later in the session.

Stocks were also pressured by a jump in bond yields after a barnstorming report on September U.S retail sales sent analysts scurrying to revise up forecasts for economic growth for both the third and fourth quarters.

JPMorgan jacked its growth call up to an annualised 4.3%, from 3.5%, while the influential Atlanta Fed GDPNow prediction jumped to a heady 5.4%.

Markets reacted by pricing in more risk the Federal Reserve will be forced to hike again. A move in November is still seen as just an 11% chance, but January climbed to 50% from 37%.

The market also again scaled back expectations for early rate cuts, with no chance of a move until June and around 54 basis points of easing implied for all of 2024.

Bonds took that badly, with two-year yields surging as much as 14 basis points on Tuesday to a 16-year peak of 5.24%. The two-year was last at 5.22%, while ten-year yields were back near recent highs at 4.84%.

The rise in yields underpinned the U.S. dollar, particularly on the low-yielding Japanese yen where the dollar reached 149.77 to again threaten major resistance at 150.00.

The euro eased back a touch to $1.0573 , having been as high as $1.0595 on Tuesday.

Safe-haven flows supported gold at $1,924 an ounce , well above its recent trough of $1,809.

Oil prices swung higher once more, driven by data showing a fall in crude stocks and amid concerns over the Middle East.

Brent climbed $1.35 to $91.25 a barrel, while U.S. crude rose $1.62 to $88.28 per barrel.

Biden cuts China off from more Nvidia chips, expands curbs to other countries

https://reuters.com/article/usa-china-chips/biden-cuts-china-off-from-more-nvidia-chips-expands-curbs-to-other-countries-idUSKBN31H1B3

The Biden administration plans to halt shipments to China of more advanced artificial intelligence chips designed by Nvidia and others, part of a raft of measures released on Tuesday that seek to stop Beijing from receiving cutting-edge U.S. technologies to strengthen its military.

The rules, which go into effect in 30 days, restrict a broader swathe of advanced chips and chipmaking tools to a greater number of countries including Iran and Russia, and blacklist Chinese chip designers Moore Threads and Biren.

The new measures close loopholes in regulations released last October and will probably be updated "at least annually," Commerce Department Secretary Gina Raimondo told reporters late on Monday.

The goal is to limit China's access to "advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to (Chinese) military applications," she said, stressing the administration was not seeking to hurt Beijing economically.

She said China will still import hundred of billions of dollars worth of U.S. semiconductors.

A spokesperson for the Chinese embassy said it "firmly opposes" the new restrictions, adding that "arbitrarily placing curbs or forcibly seeking decoupling to serve (a) political agenda violates the principles of market economy and fair competition (and) undermines the international economic and trading order."

The new measures demonstrate the Biden administration is struggling to slow the flow of chips and chipmaking tools into China, even as concerns mount over the role U.S. technology is playing in modernizing Beijing's military.

Reuters reported in June that the very AI chips barred by prior regulations could be purchased from vendors in China's Shenzhen.

Georgetown University's Center for Security and Emerging Technology found in a June 2022 report that out of 97 individual AI chips procured via Chinese military tenders over an 8-month period in 2020, nearly all of them were designed by Nvidia, Xilinx, Intel (INTC.O), and Microsemi.

AI capabilities, aided by supercomputing and advanced chips, improve the speed and accuracy of military decision-making, planning and logistics, according to the regulations released Tuesday.

In a statement following publication of the rules, top U.S. AI chip designer Nvidia (NVDA.O) said it complies with regulations and does not expect a meaningful hit to near-term results.

Nvidia's business has soared since the imposition of last year's rules because its China-only chips are still better than alternatives. The firm is currently selling almost every chip it can procure as worldwide demand outstrips supply, but would be hurt in the long term as Chinese chip firms look elsewhere to fill any voids left by U.S. companies.

The company has made chips such as the A800 and H800 that walked up to the line of the previous rules to continue selling to China, and AMD (AMD.O), also impacted by the rules, has said it plans a similar strategy.

Nvidia's shares fell 3.7%, while shares in AMD and another rival AI chipmaker, Intel, slid 0.6% and 1% respectively.

The new rules will exempt most consumer chips used in laptops, smartphones and gaming, though some will be subject to licensing and notification requirements by U.S. officials.

The previous rules imposed a two-pronged test that measured both a chip’s computing performance and its ability to communicate with other chips, an important measure in AI supercomputers where thousands of chips are strung together to chew through huge amounts of data.

Nvidia and Intel created special chips for the Chinese market that retained the powerful computing capabilities but limited communications speeds to stay inside the previous rules.

The new rules impose limits on how much computing power a chip packs into a certain size, a measure designed to prevent workarounds using new "chiplet" technology that China has said will be central to its semiconductor industry's future.

Chinese firms Biren and Moore Threads, whose U.S. suppliers will now face a tough licensing requirement before shipping products to them, are both startups founded by former Nvidia employees and aim to compete with the U.S. AI chip giant.

Biren said it firmly opposes its blacklisting and will appeal to the U.S. government to reexamine the decision. Moore Threads said it strongly disagrees with its addition to the trade blacklist.

The new measures also expand licensing requirements for exports of advanced chips to more than 40 additional countries that present risks of diversion to China and are subject to U.S. arms embargoes.

That measure appears to build on a letter received by Nvidia in August that it described as restricting shipments of its A100 and H100 chips beyond China to other regions including some countries in the Middle East.

Confirming a Reuters report, chips will be barred from being sent to units of firms located anywhere in the world if their parent companies are headquartered in China, Macau and other arms embargoed countries.

The Biden administration also hit 21 countries outside China with a licensing requirement for chipmaking tools, over fears the equipment could be diverted to China and other national security concerns.

It also added to the list of equipment restricted from going to that country to include some deep ultraviolet (DUV) lithography systems, going beyond recent Dutch regulations to keep the Netherlands' ASML from sending older DUV models and spare parts to some advanced Chinese chip factories, confirming another Reuters report.

DUV is less advanced chipmaking equipment than state-of-the art extreme ultraviolet equipment (EUV), which has already been withheld from China, but can make chips nearly as advanced at greater cost.

ASML said in a statement the new measures would likely have an impact on "the regional split of our system sales" over the medium to long-term, but the company did not expect to see a "material impact" on its financial outlook for 2023 or the longer term.

Shares of rival U.S. equipment makers Lam Research was flat while Applied Materials traded up 0.6% and KLA down 1.3%.

"We don’t think incremental semiconductor equipment restrictions are likely to have significant long term effects" on equipment suppliers, Wolfe Research said in a client note.

KLA declined to comment. Lam and Applied did not immediately respond to requests for comment.

U.S. officials said Chinese counterparts were warned the rules were coming by Raimondo, National Security Advisor Jake Sullivan, and Treasury Secretary Janet Yellen, confirming a Reuters report.

The Semiconductor Industry Association said in a statement it was "evaluating the impact" of the new rules and urged the administration to work with allies. "Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security," the group said.