Dragoman Digest

Poland and Singapore deepen their roles in high-tech supply chains

No matter who hosts the factories, Washington still sets the terms of the chip industry

An expected investment of around US$20 billion by Taiwanese electronics assembler Foxconn would anchor a hub near the Polish city of Wrocław for the island’s makers of AI servers and EV components. A formal agreement between Warsaw and Taiwan’s electronics industry association, which represents over 3,000 firms, is anticipated by year-end. The site and US$1.96 billion in state aid were earmarked for US chipmaker Intel until it pulled out last year to cut costs. Redirecting both to Foxconn and other Taiwanese firms dovetails with Warsaw’s pursuit of partnerships, including with South Korea, that dilute its exposure to the US administration. With Russia probing Poland’s boundaries, Warsaw also wants the electronics underpinning its cyber and military defences made at home. Taipei, for its part, hopes embedding its firms in global supply chains will give other countries a stake in deterring any attempt by Beijing to seize the island.

Taiwanese firms are expanding in Singapore too, where Taiwan’s Vanguard International Semiconductor and Dutch chipmaker NXP jointly opened a US$7.8 billion plant last month. The city-state now makes one in 10 of the world’s semiconductors and a fifth of the machinery that produces them. Prime Minister Lawrence Wong unveiled plans in August to overcome land scarcity by merging smaller islands into a larger reclaimed site for advanced manufacturing. Even so, cheaper land and workers in neighbouring Johor, Malaysia, could lure manufacturers across the border.

However generous the incentives host governments offer, these hubs remain bound to rules set by Washington. Singapore’s success has drawn it into a US trade investigation, launched in March, over alleged excess capacity in its chip and electronics industries. Washington is also leaning on the city-state to stop high-end US chips being smuggled into China – an economic partner Singapore cannot afford to alienate. By July, under pressure from Washington, Nvidia had more than halved the number of Asian customers cleared to buy its AI chips after tougher vetting in Singapore, Malaysia, and Japan. Poland’s hub, meant partly as a hedge against a mercurial Washington, will still depend on US export policy for the AI chips at its core.

The end of cheap money divides Japanese business

Small borrowers are the first casualties while big companies idle

The Bank of Japan, which held interest rates below zero for eight years until 2024, lifted its benchmark rate to 1.25 percent in September, the highest since 1995. Three decades of flat or falling prices have given way to four years of inflation running mostly above the central bank’s two percent target. That reversal upends orthodoxies that guided companies, lenders, and households for a generation. Higher borrowing costs have galvanised parts of industry into mergers that investors and officials have long urged, contributing to a record US$385.9 billion in acquisitions involving Japanese companies in 2025. Major banks stand to gain too. MUFG, the largest, eclipsed carmaker Toyota in July to become Japan’s most valuable listed company – the first bank to do so in four decades.

Much of the rest of the economy was built on cheap credit, and the firms most dependent on it are faring worse. Zentoshin, a payment processor, advanced 200,000 small businesses such as bars and restaurants the proceeds of customers’ card purchases weeks before card companies settled, bridging the gap with borrowed money. When it foundered in July owing US$711 million, over 60 regional banks and credit unions were left holding its debt. Smaller homebuilders are under similar strain: in the first half of the year bankruptcies jumped 87 percent as mortgage rates and building costs climbed.

Aside from consolidation, big corporates have been slow to adapt. Under deflation, unspent cash held its value and near-zero rates made it cheap to keep weak divisions ticking over. The economy ministry found 65 percent of invested capital at the country’s 350 largest firms is tied up in businesses earning less than investors could make elsewhere. How much further rates rise is contested. Washington has pressed Japan’s central bank for higher rates to prop up the yen, fearing currency turmoil could force sales of Japanese-held US government bonds and lift US borrowing costs. Prime Minister Sanae Takaichi, whose two appointees to the bank’s board voted against September’s rise, favours expansionary spending and is pulling the other way. The faster rates climb, the harder small borrowers are hit. The slower they climb, the longer big corporates can put off change.

China pulls ahead of the West in developing sodium-ion battery technology

State subsidies have widened Chinese manufacturers’ lead

Sodium-ion batteries are emerging as an alternative to lithium-ion in products ranging from electric vehicles (EVs) to large-scale energy storage. The technology stores energy using sodium, an abundant element found in seawater and salt deposits. Lithium-ion batteries, in contrast, rely on less abundant and more expensive critical minerals such as graphite and cobalt, whose processing China dominates. Sodium-ion batteries hold less energy than lithium-ion for their size but promise to be safer and longer lasting. Despite these benefits, Western buildout of sodium-ion technology has stuttered, leaving China far ahead in research and development. Where several European and US startups such as Natron Energy and Bedrock Materials have folded, Chinese rivals already produce at commercial scale. Chinese carmaker Changan is developing what it bills as the world’s first mass-produced EV powered by sodium-ion batteries that it aims to bring to market this year. The capacity of operating and planned sodium-ion plants in China exceeds 400 gigawatt hours, dwarfing the 11 gigawatt hours across the rest of the world.

China’s lead rests heavily on state backing. Battery maker CATL and auto group BYD have been supported by tax breaks, alongside direct government R&D investment. Western startups have had to rely largely on private capital. By one industry estimate, scaling up a sodium-ion supply chain costs at least US$100 million per plant, and nothing of that scale is being committed outside China. The gap is poised to widen. Cost parity with lithium-ion is forecast for 2027, with widespread commercialisation expected by the end of the decade, and almost all the capacity to meet the resulting demand is in China. This leaves Western governments exposed to yet another dependency on Beijing which has already weaponised its supply chain dominance through export controls.

Qatar continues to suffer deep economic woes from Iranian strikes

Doha’s inability to export and produce LNG has crippled its economy and public spending

The US-Israeli war with Iran has hit Qatar harder than most of the Gulf. In the war’s opening weeks, Iran’s drone and missile strikes on Qatar’s Ras Laffan complex, the world’s largest LNG export facility, forced production to halt and knocked out 17 percent of its capacity for up to five years. With little gas able to get through the Strait of Hormuz, monthly output fell by about two-thirds between March and July. For Qatar, the world’s second largest LNG producer, that has gutted its main source of revenue and export earnings – costing Doha up to US$2 billion a week. The IMF forecasts a 15.6 percent contraction in GDP this year, exceeded in the Gulf only by Kuwait.

The resulting loss of government revenue – 42 percent in the first half of the year – is feeding through to public spending. Doha has slashed government department budgets by up to 30 percent and foreign aid by about 85 percent. It has also drawn on financial buffers to keep the economy liquid, leaving a substantial hole in the budget. Relief is not imminent. The war has pushed the start-up of Qatar’s US$30 billion North Field LNG expansion back to 2027. The country’s US$580 billion sovereign wealth fund, the Qatar Investment Authority, provides a deep reserve. However, the government is now weighing withdrawals from it to cover the shortfall.

While Iran’s attacks have hurt every Gulf economy, those most dependent on the Strait of Hormuz have suffered the worst of the fallout. Saudi Arabia and the UAE have cushioned the blow with pipelines that bypass the Strait and higher crude prices. That cushion has been under fire for months. Iranian drones have repeatedly struck Fujairah, the UAE’s export terminal on the Gulf of Oman, halting loadings at times. Since declaring a blockade of Saudi ports in July, Yemen’s Houthi rebels have attacked Red Sea oil facilities and tankers leaving Yanbu, the Kingdom’s main route out for crude avoiding Hormuz. Were a prolonged war to push Riyadh and Abu Dhabi down Doha’s path, a retreat by sovereign funds that together manage about US$5 trillion would be felt in markets well beyond the region.