Export Controls

Zhipu, the HSTECH index's standout performer this year, has rallied approximately 1,100% and attracted precisely one short call, which is either a sign of extraordinary conviction in Chinese AI's domestic substitution story or a market that has stopped asking hard questions about fundamentals. New US Commerce Department guidance is specifically targeting the overseas-subsidiary loophole that allowed Chinese-owned entities to access Nvidia Blackwell processors through offshore structures, and it applies to future acquisitions rather than existing deployments. The mechanism matters: Chinese AI firms with chips already installed keep running, but their ability to expand compute capacity at the frontier is being progressively squeezed with each enforcement round. The counter-thesis, visible in Zhipu's price, is that architectural workarounds and domestic chip progress will outpace the controls. That bet has looked reasonable for two years. Whether it survives the Blackwell-specific rules is the question that the single short seller is asking that no one else in the market currently is.

The SFC is distributing a HK$1 billion compensation pool funded by PwC Hong Kong for Evergrande minority shareholders, and it has refused to pause despite a judicial review filed by Evergrande's own liquidators, as coverage of the scheme confirms. The underlying misstatements were not marginal: per the SFC's own findings, Evergrande overstated FY2020 revenue by RMB350 billion, a 69% inflation, and reported a RMB31.4 billion profit in a year when the true result was a RMB19.9 billion loss. The liquidators' legal challenge is substantive, arguing the SFC had no freestanding statutory power to settle misconduct claims with an auditor, which is the AFRC's remit, and that the scheme may prejudice the estate's own potential claims against PwC. The precedent matters beyond the Evergrande carcass: this is Hong Kong's first instance of auditors of a defunct company being compelled to compensate shareholders via a regulator-brokered fund, and if it survives the judicial review it reshapes auditor liability calculus for every Big Four firm running China-exposed Hong Kong listings.

Hedgeye's Felix Wang has put a HK$407 fair value on Zhipu as a short, running directly against the momentum that has made it the hottest name on the HSTECH Index this year, and his core argument is that DeepSeek's V4 model has ignited a price war among Chinese AI firms that will destroy Zhipu's pricing power before its revenue base is big enough to absorb the compression, as Bloomberg's coverage of the move details. The counter-thesis, which is why the stock ran in the first place, is that US restrictions on Anthropic and other Western frontier models are redirecting Chinese enterprise demand toward domestic providers, making Zhipu a structural beneficiary of geopolitical decoupling rather than a cyclical AI play. Both can be true simultaneously: the demand tailwind is real, but a price war among five or six domestic Chinese AI firms competing for the same enterprise budget compresses the economics of that tailwind fast. Meanwhile, Sarvam AI has become India's latest AI unicorn at $234 million raised from HCLTech, Bessemer, and Khosla Ventures, and Jeff Bezos has backed UK-based CuspAI in a $400 million round focused on AI for physical-world simulation. The latter two deals point to where the next wave of differentiated AI capital is flowing: away from foundation model plays and toward domain-specific and scientific applications where defensibility is higher.

Indonesia is finalizing a centralized export framework for crude palm oil, coal, and ferroalloys through its Danantara sovereign wealth fund vehicle, potentially affecting $65 billion in annual commodity shipments. Trade Vice Minister Dyah Roro Esti told Bloomberg an update would come within weeks, following President Prabowo's claim that Indonesia lost $908 billion over 34 years to under-invoicing and export manipulation. The policy will route transactions through a state-managed digital platform starting January 2027, raising concerns among palm oil producers about contract continuity and pricing flexibility in niche markets. Indonesian commodity-linked equities have already declined on implementation uncertainty.

Indonesian palm oil stocks tumbled after the government introduced export allocation requirements for used cooking oil and palm residues to support its B40 biodiesel program. UCO and palm residue exports from January-November 2024 totaled 3.95 million tonnes, down 13.75% from 2023. The move echoes the three-week palm oil export ban in April-May 2022 that sent global food prices spiking and weakened the rupiah. Indonesia plans to produce 15.6 million kiloliters of B40 biodiesel in 2025 and wants to prevent subsidized cooking oil from being mislabeled as UCO and exported. The world's largest palm oil producer is prioritizing domestic energy security over export revenue, tightening feedstock supply for European biodiesel plants.

Treasurer Jim Chalmers has ordered several China-linked investors to sell down their 10.4% stake in Northern Minerals, a rare earths producer with a strategic heavy rare earths project in Western Australia. The decision targets Yuxiao Fund and associates who tried to build toward 20% ownership without proper approvals, threatening Australia's effort to break China's dominance in critical minerals. Northern Minerals feeds into the government-backed Eneabba refinery with $1 billion in taxpayer funding, making any Chinese control politically impossible.

China's semiconductor companies are pivoting to AI inference chips designed specifically for token-based computing, creating unexpected winners as Western export controls reshape the market. Companies like Biren Technology and Cambricon are targeting the exploding demand for high-throughput token processing rather than competing directly with Nvidia's training chips. The token economy architecture requires different chip designs optimized for parallel processing over raw compute power, giving Chinese firms a cleaner competitive slate.

Beijing is deploying export restrictions like cruise missiles — precise, targeted, and designed to cripple supply chains before anyone notices the launch. The soaring use of trade controls signals China's pivot from global integration to strategic fragmentation, choosing economic leverage over market access. This isn't protectionism; it's weaponisation. While Washington debates TikTok bans, China is quietly strangling critical material flows to anyone who crosses it. The West built globalisation assuming everyone would play by free-market rules. China learned the rules, then wrote new ones.