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China's Medtech Volume-Based Procurement Big Savings, Bigger Challenges by EOS Intelligence
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China’s Medtech Volume-Based Procurement: Big Savings, Bigger Challenges

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China’s phased rollout of Volume-Based Procurement (VBP), which started in the pharmaceutical industry in 2018, quickly expanded to the medical devices market in 2019. VBP standardizes medical device prices in China, fosters medtech innovation, makes medical consumables more accessible, and reduces healthcare expenses for both patients and the government. The program is doing this by granting high-volume sales to medical device manufacturers, offering the lowest prices across the city, province, or country level, depending on the tender type.

VBP policy follows the Healthy China strategy

In September 2021, the National Healthcare Security Administration, a governmental body responsible for funding public healthcare in China, made its 14th five-year plan (FYP), including the years from 2021 to 2025. China’s 14th FYP has laid down a Healthy China strategy that aims to improve social conditions, including healthcare in the country.

China has struggled with costly and uneven healthcare access between urban and rural areas, contributing to poverty, primarily in rural regions. Poverty due to illness affected around 20 million people, or 44.1% of the poor population in 2015, according to the National Health Commission. Other challenges include a hike in noninfectious diseases due to poor lifestyle habits and an increasingly aging population.

The 14th FYP aims to mitigate these challenges by improving the affordability and accessibility of healthcare services in China by 2025. China will achieve this through various policies, including public hospital reform and equal access to essential public healthcare services.

The Chinese government rolled out VBP, or competitive tendering of medical consumables, to achieve the 2025 target of 80% of hospitals’ expenditure to go through the provincial tendering process across several device categories.

China's Medtech Volume-Based Procurement Big Savings, Bigger Challenges by EOS Intelligence

China’s Medtech Volume-Based Procurement Big Savings, Bigger Challenges by EOS Intelligence

VBP has had a tremendous impact on many medtech players in China

Between 2019 and 2021, the top 10 producers of high-value medical consumables in the Chinese market participated in VBP tenders at the provincial level with a nearly 70% median reduction in the prices the manufacturers offer under the tender.

The average price reductions on medical devices such as coronary stents, joint replacement systems, spinal and orthopedic products, and total knee replacement systems were cut by 95%, 82%, 84%, and 84%, respectively.

With these significant price reductions, VBP rippled through the medtech sector, affecting companies in many ways and forcing them to rethink their strategies to compete more effectively in China.

Declining revenues

The introduction of VBP has adversely affected some of the leading medtech companies, resulting in a downturn in their revenues in China. These medtech companies aimed to mitigate the impact by reducing costs and discounts. The impact of VBP on the world’s largest medical device maker, Medtronic, caught the attention of the medtech community due to the company’s considerable presence in China. The company’s Q3 2022-2023 earnings call reported that sales declined drastically due to VBP. Medtronic’s most impacted business lines included the surgical division, cardiac ablation solutions, and neurovascular lines. According to estimates, VBP affected 80% of Medtronic’s product portfolio in China. As a response, the company reduced its marketing, selling, administrative costs, and discounts. However, by Q2 2023-2024, the company said it would work through the impact due to China VBP by the end of FY 2024.

VBP has also negatively affected other foreign medtech companies, such as Alcon in China. Alcon’s exposure to China is about 5% of the company’s sales, predominantly in the surgical division. Alcon is likely to witness the impact of VBP in FY2024, ending in March 2025. Since the rollout of VBP takes place on a province-by-province basis, an abrupt fall in sales is highly unlikely in Alcon’s implants segment.d

The introduction of VBP has unfavorably impacted domestic medtech companies manufacturing intraocular lenses (IOLs) in China. Local player Airui Technology decreased its price of IOLs by as much as 65%.

Pressure on resource availability

National-level VBP tenders in China are usually finalized and awarded quickly. For instance, a temporary alliance of 22 (out of 23) provinces issued a competitive tender for liver function tests (LFTs) in November 2022. This tender’s result was published on December 30, 2022.

Compared to biopharma players, an idiosyncratic challenge for medtech companies is the need for a considerable amount of resources to be readily available when tenders occur. These resources must be strategically deployed to facilitate responses to tenders that are issued on short notice and awarded quickly and frequently. This is particularly challenging when bidding for regional or provincial VBP tenders that occur more frequently than national tenders, as many provinces in the country award contracts at different times.

Market exits

Although in the minority, some companies opted for more extreme measures. A few of them decided to withdraw from the Chinese market. For example, in March 2023, US-based Zimvie disclosed its intention to withdraw its spine business from the Chinese market following the challenges caused by the VBP roll-out.

Medtech companies have adapted amidst tough market conditions

Medtech companies faced pressure to lower prices, adjust their market and segment entry strategies, and optimize their workforce. These strategic changes aimed at mitigating the impact of lower revenue and profit margins on their existing product lines.

Staffing and organizational changes

Many medical device manufacturers that have encountered significant price reductions have responded by either reducing their workforce to manage expenses or by maintaining only managerial roles to focus on distribution in markets outside of VBP. Similarly, some medtech companies that witnessed moderate price cuts streamlined their field force to better align with the future servicing needs of their customers, including hospitals.

Other staffing and organizational changes include freezing hiring, outsourcing technical service jobs to third-party providers, and consolidating multiple product-focused teams into a single team.

Business model alterations

Some MNCs, including in-vitro diagnostics (IVD) companies, have changed their business model and leveraged partnerships with local medtech players to develop products. This strategic move will likely attenuate margin pressure by utilizing the local medtech partner’s cost advantage. Another advantage is that in-licenses or combined medical device development will likely counteract revenue stream losses.

IVD players are increasingly partnering with local medtech players to minimize the risk to their business model due to VBP, increase profit margins, expand their revenue streams, and continue to have sustainable relationships with hospitals. For example, Roche Diagnostics partnered with Fapon Biotech in November 2022 to improve its cost advantage by outsourcing its non-core reagent materials. Similarly, Danaher partnered with China Resources to outsource portfolios to national distributors or contract sales organizations in 2022.

VBP brought a mixed bag of consequences to other medtech industry stakeholders

Impact on the Chinese government spending

The Chinese government made considerable savings through the VBP program, thanks to curbing certain healthcare costs, and could potentially shift these savings to the sector’s other segments. The estimated annual savings based on the intended purchase volume was 10.9 billion yuan (US$1.6 billion) for coronary stents, 16 billion yuan (US$2.3 billion) for artificial hip and knee joints, and 26 billion yuan (USD$3.7 billion) for spinal and orthopedic products.

To put these numbers into perspective, the total savings from these three categories alone make up nearly 2.2% of China’s total public medical insurance spending of US$372.6 billion in 2021. These savings stem from VBP’s aim to reduce healthcare expenditures for the Chinese government by providing reasonably priced medical devices and implementing standardized pricing nationwide.

Impact on medtech distributors

One of the primary reasons for the high costs of medical devices for hospitals and patients in China is the unreasonably elevated profit margins of medtech distributors. The introduction of VBP has negatively impacted these margins.

At the same time, medtech companies are likely to pivot from a distributor-driven model to a direct distribution strategy to regain their own margins lost due to the increasing price pressures imposed by VBP. This transition is likely to limit the role of distributors to logistics functions, as seen in many other markets. At the same time, medtech companies will take ownership of commercial responsibilities and execute them through various channels.

The focus of VBP has expanded to specialized medical device categories

While the initial focus of VBP was on commoditized products with strong local alternatives, VBP has now ventured into medical device categories earlier perceived as not feasible for VBP tenders, such as electrophysiology for cardiology and immunoassays for IVD.

With VBP causing a radical change in commoditized products, medtech companies must now speed up registration and commercialization of products from specialized (non-commoditized) medical device categories that are in the pipeline. Pharmaceutical companies have already embraced this shift in strategy, while the change is gradually gaining steam among medtech players.

EOS Perspective

VBP is not a win-win strategy for all medtech stakeholders. Clear winners of VBP are patients and the Chinese healthcare system, while medtech companies, both domestic and foreign, and medtech distributors might get the shorter end of the stick.

VBP has made it difficult for all medtech companies operating in China to earn profits as high as in the past and has forced them to navigate in a more challenging environment.

At the same time, VBP is not entirely synonymous with foreign medtech players not succeeding in China. Chinese patients tend to prefer medical devices made by Western producers over those from domestic companies, provided that the imported devices are available at affordable prices. This preference is mainly due to the perception that foreign products are of higher quality than local options.

VBP will likely foster innovation in technology as companies will need to develop and design the best quality products to have an edge over their competition in tenders. Due to lowered prices, the bargaining power of medtech companies has decreased. Therefore, to differentiate themselves from their competition, they will need to prioritize innovation.

Although VBP has increased headwinds on the prices of medical devices, it has fueled strategic partnerships of MNCs with local medtech players. Local partnerships are likely a good move for all involved stakeholders, potentially also driving the overall growth of the medtech industry in China.

With China’s intention to pay 80% of its medtech expenditure through VBP by 2025, it will not be surprising to see VBP’s rollout in new categories of medical devices in the country.

The introduction of VBP will also have global repercussions, including a decline in small to medium medtech players’ interest in entering the Chinese market. However, the undeniable advantage of VBP’s introduction is that medtech companies will strive to innovate at lower costs, which will be a long-term driver for the market.

 

DeepSeek’s Disruption Reshaping the Global AI Battlefield by EOS Intelligence
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DeepSeek’s Disruption: Reshaping the Global AI Battlefield

In January 2025, DeepSeek AI introduced two powerful large language models (LLMs) that shook the AI world. Developed at a fraction of the cost of its existing peers, DeepSeek holds the potential to transform the AI development landscape globally.

DeepSeek’s efficiency enables better cost-effectiveness by reducing computational needs

DeepSeek’s V3 and R1 models focus on efficiency and require less computing power than rival models while delivering equivalent performance. Its efficiency stems from using the “Mixture-of-Experts” (MoE) architecture, which activates only parts of the model for a given task, minimizing computational needs. This targeted use of computational memory reduces operational costs, giving it a significant edge over competitors who rely on more resource-intensive approaches.

The arrival of DeepSeek has sent shockwaves throughout the US tech industry, marked by a significant decline in stock values. The key headline event was Nvidia’s US$600 billion drop in market capitalization. The fact that a Chinese company was able to achieve groundbreaking results at a fraction of the cost by using low-power Nvidia H800 chips challenges the investment poured into the market by established players.

The open-source model enables widespread applications at a budget

DeepSeek has embraced a fully open-source model, allowing anyone to utilize their technology for commercial purposes. DeepSeek’s open-source approach democratizes access to AI, enabling a wider range of applications.

The availability of DeepSeek’s advanced APIs at a very low cost also appeals to customers who have previously been priced out of advanced AI applications due to the higher costs of proprietary LLM models such as OpenAI’s GPT.

The AI ecosystem already feels the impact of DeepSeek’s triumph. Its free AI assistant has also made a significant splash in the consumer market, with DeepSeek’s app surpassing ChatGPT in Apple Store charts. Its cost-effectiveness has even attracted the attention of major players such as AWS and Snowflake, which are now offering DeepSeek’s technology on their platforms.

Following DeepSeek’s success, several other Chinese companies may follow suit by developing more efficient yet high-performing AI models, further driving the costs down. Alibaba already released a new version of its Qwen 2.5 model at the end of January 2025.

Initial success of DeepSeek does not guarantee dominance

DeepSeek’s success does not guarantee its dominance in the AI landscape. We have had precedence of a similar company making headway and then falling off in the AI space. Mistral’s open-source AI model, Mixtral 8x7b, initially seemed poised to disrupt the field. However, it quickly fell off the radar when other closed-source models incorporated Mixtral’s innovations.

DeepSeek’s continued success will depend on whether it is able to maintain its edge through continuous innovation, particularly with limited access to high-performance chips.

Read our related Perspective:
 NVIDIA’s Meteoric Rise: Can the AI Chip Giant Sustain Its Dominance?

EOS Perspective

DeepSeek’s emergence as a serious contender has intensified the global AI race, challenging the dominance of established players such as OpenAI, Meta, and Google.

DeepSeek-R1, with its open-source foundation, has already demonstrated impressive abilities in handling complex text-based tasks, such as summarizing documents, answering technical questions, and generating codes. Moreover, it offers these capabilities through APIs at a fraction of the cost of its competitors, potentially disrupting the market and driving down prices for AI services.

With DeepSeek’s AI models requiring less computational power and hardware, they will offer significant cost savings for users. Combined with its open-source model, which fosters customization, collaboration, and broader access, DeepSeek is expected to gain traction rapidly. While it is currently limited to text-based queries, its potential is undeniable.

While questions about Chinese government influence and censorship persist, DeepSeek presents a compelling vision of AI disruption. In the short term, we can anticipate lower AI adoption costs and shrinking profit margins for established AI providers. Furthermore, DeepSeek’s emphasis on efficiency could spark a shift in the industry, prioritizing resource optimization over simply increasing computing power. The full scope of DeepSeek’s impact, however, will only unfold over time.

Open Banking Sparking a Wave of Innovation in Financial Services by EOS Intelligence
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Open Banking Sparking a Wave of Innovation in Financial Services

The adoption of open banking is leading to innovation across financial solutions such as account-to-account payments (A2A), personal finance management (PFM) apps, embedded finance, and banking-as-a-service (BaaS) by enabling real-time data-driven insights and personalized financial services. It is paving the way for a more dynamic financial landscape. Open banking has evolved rapidly since the revised Payment Services Directive (PSD2) came into force in Europe. While challenges exist, adopting open banking solutions, aided by introducing regulatory and security measures, holds the potential to revolutionize the financial services sector.

The introduction of APIs transformed banking services

Open banking has emerged as a transformative force, changing how financial data is shared, and services are offered to consumers. It securely provides third-party financial service providers access to consumer’s financial information with their consent through an application programming interface (API). It aims to foster innovation in financial services, encourage healthy competition, and give consumers more control over their banking information. Several banks across countries, including Citi, Barclays, and Deutsche Bank, have started providing access to their APIs.

Regulatory initiatives and consumer demand lead to open banking growth

While open banking has existed for a long time, it gained traction when the PSD2, a European regulation focused on creating a more open, competitive, and secure payment landscape across Europe, came into effect in 2018.

Since then, several countries have introduced open banking regulations to support its adoption. For instance, in the UK, the open banking initiative, led by the Competition and Markets Authority (CMA, the UK’s principal authority responsible for strengthening business competition and preventing anti-competitive activities), became effective in 2018. In addition to the European countries, Australia, New Zealand, Brazil, and South Africa, among others, have introduced regulatory measures to drive the adoption of open banking.

Countries across the globe are adopting various approaches to open banking, including regulatory-led, market-led, and hybrid approaches. While Europe has taken a regulatory-led approach, adopting open banking in the USA, Canada, and China is driven by consumer demand and technological innovations. Consumers prefer to have control and transparency over their financial data. While there are currently no regulatory frameworks for open banking in the USA, the Consumer Financial Protection Bureau (CFPB) has proposed rules to protect consumer data rights, which will aid in facilitating the adoption of open banking.

Several countries, such as India, South Korea, Japan, Hong Kong, Russia, and Singapore, have adopted a hybrid model, including both regulatory and market-led initiatives. These countries do not have mandatory open banking regimes, but policymakers are looking to introduce initiatives to accelerate open banking adoption. For instance, in Singapore, the Monetary Authority of Singapore (MAS) and the Association of Banks have published an API playbook. This publication aims to support data exchange between banks and fintech players.

The growing emphasis on introducing regulatory measures to ensure data security will likely drive the adoption of open banking.

Open Banking Sparking a Wave of Innovation in Financial Services by EOS Intelligence

Open Banking Sparking a Wave of Innovation in Financial Services by EOS Intelligence

Open banking is driving innovation in financial solutions

The adoption of open banking is transforming financial solutions, including A2A payments, variable recurring payments (VRP), PFM apps, BaaS, and embedded finance, by enabling faster, more convenient, secure, and personalized financial services.

A2A payments and VRP

Open banking allows secure access to real-time bank data to third-party providers, enabling process automation, speeding up A2A payment transfers, and providing a better user experience. Increasing adoption of open banking globally is expected to make international A2A payments more viable and secure.

Digital wallet platforms such as Apple Pay, Google Pay, and Stripe are looking to integrate open banking on their platforms to provide enhanced user experience. In September 2023, Apple soft-launched a new iPhone wallet app in the UK integrated with an open banking framework to replace traditional banking apps as the preferred platform for accessing information related to their account balance, spending history, etc.

Open banking also encourages the widespread adoption of variable recurring payments by giving consumers more transaction control and transparency. The use of variable recurring payments is expected to increase across various commercial payment services, such as utility bills, subscriptions, and insurance premiums, in the coming years.

PFM apps

Access to financial data enables PFM apps to share more effective and personalized financial advice with consumers. A real-time snapshot of the overall financial health of the consumers helps them make long-term financial decisions.

BaaS

Banking-as-a-service platforms are likely to develop due to the adoption of open banking, allowing non-banking entities to provide financial services without becoming certified banks. This offers consumers a variety of payment and credit options, as well as more personalized finance solutions, expanding the industry offering.

Integrating BaaS in retail is being explored to improve customer loyalty programs and provide seamless payments. Also, the scope of services is likely to expand rapidly, from offering banking services to individual consumers to small and medium-sized enterprises (SMEs) and large corporations in the near future.

Embedded finance

Open banking has become the driving force behind the rise of embedded finance, enabling businesses and corporate clients to enhance operational efficiency and user experience. While retail and e-commerce platforms are some of the first to adopt embedded finance, the adoption is likely to increase in less digitalized spaces such as real estate as well.

Synergy with AI and blockchain offers scope for advanced innovation and security

Open banking provides a data-rich environment by aggregating data from various financial institutions for AI algorithms to analyze and utilize for decision-making. It is expected to benefit AI algorithms further by incorporating new features such as data categorization and anomaly detection in the coming years.

On the other hand, AI is likely to increase the effectiveness of open banking by analyzing individual consumer data and enabling the offering of personalized services. AI and open banking will likely help financial institutions develop innovative products.

While both AI and open banking complement their financial services, they can lead to data misuse or unauthorized access concerns, highlighting the need for strong regulatory measures to keep up with the evolution of open banking and AI.

Blockchain technology will likely become more common in open banking as it will enhance the security and transparency of financial transactions. It will likely reduce the risk of data breaches and unauthorized access to consumers’ finances. Additionally, it will likely make it easier for consumers to share their data by simplifying the authentication and consent processes.

Open banking services have expanded from basic payment initiation to open finance

The open banking framework has evolved from basic account information and payment initiation services to open finance, including access to data from various accounts, including savings, investments, pensions, insurance, and mortgages.

Countries such as India, South Korea, Australia, and Brazil have moved from open banking to open finance to develop a more connected financial ecosystem. In February 2024, South Korea also introduced two initiatives focused on including business data and providing offline open banking services.

In Europe, the European Commission is also pushing towards open finance by introducing the Financial Data Access (FiDA) regulation, a framework to enable secured sharing and access of financial data.

Open banking will diversify consumer options, with non-financial companies such as telecom providers, e-commerce platforms, and utility companies offering innovative financial products. They will likely enter into partnerships with banks to provide integrated services to consumers, enhancing their offerings and creating an interconnected financial ecosystem.

Lack of standardized APIs affects the open banking adoption

While open banking is gaining traction, specific challenges, such as lack of standardized APIs, integration with legacy systems, privacy compliance, and data security, are affecting its adoption.

The lack of standardization of APIs across financial institutions is the key challenge in adopting open banking. Third-party providers are usually unable to adapt to different APIs and provide seamless data sharing between systems.

Various financial institutions also face difficulty integrating open banking into their legacy systems, making the integration process complex and expensive. Banks must first update their systems by investing in technology upgrades and partnering with fintech solutions providers to overcome integration challenges.

As the adoption of open banking increases, the chances of data breaches might also increase, highlighting the need to protect customer data and compliance with privacy regulations. Banks are looking to adopt measures such as encryption, clear usage policies, and regular audits to protect customer data. The European Union has also put regulations such as the General Data Protection Regulation (GDPR) and the Digital Operational Resilience Act (DORA) in place to protect customer data and improve the digital security of financial institutions. Advanced security measures solutions, including tokenization and dedicated API gateways, can also help safeguard customer data.

Lack of awareness among consumers is another key challenge. Users are often unaware of open banking and are reluctant to share their financial data due to privacy concerns. Initiatives aimed at educating the users about security and regulatory norms related to open banking by banks can help overcome this challenge and drive adoption.

EOS Perspective

The shift to an open banking model can transform the future of digital banking. The key driving factors for the users are the ease and clarity of the interface, which are likely to replace the traditional banking infrastructure and ownership of consumer data.

The expected introduction of PSR1 in 2026 will likely improve competition and consumer protection in the payments market, which will likely drive the adoption of open banking. PSR1 will help enhance fraud prevention, improve consumer rights and protection, standardize payment regulations, and enhance open banking functions.

The introduction of regulatory and security measures and growing awareness about open banking and its benefits are also likely to aid this growth. A phased implementation of open banking will help with greater adoption of open banking by gradually introducing the concept to the consumers and helping them adapt.

Open banking will benefit banks by providing better customer insights, encouraging innovation, and creating an additional revenue stream through API monetization. However, increasing competition from fintech and non-financial institutions entering the market will likely pressure banks to transition to open banking. The shift to open finance will further increase the competition in the industry. We will likely witness banks entering partnerships with fintech players to develop and offer innovative financial services for their consumers.

The financial sector is embracing open banking as a means to offer creative and innovative financial solutions to enrich the user experience. Open banking will likely evolve into a broad ecosystem of connected services, streamlining the consumers’ products, services, and applications into one, providing a seamless experience.

What’s Fueling Asia’s Drive to Develop Wholesale CBDCs by EOS Intelligence
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What’s Fueling Asia’s Drive to Develop Wholesale CBDCs?

The emergence of Central Bank Digital Currencies (CBDCs) has become a central focus in the global financial space, as it offers the potential for revolutionary shifts in how the world conducts and manages monetary transactions. While much of the spotlight has been on retail CBDCs, wholesale CBDCs are gaining momentum globally. Asia is leading the pack in developing wholesale CBDCs that offer opportunities that may significantly impact the global financial landscape.

Asia is outpacing developed countries in the drive toward wholesale CBDCs

Wholesale CBDCs are digital forms of a country’s fiat currency. Unlike retail CBDCs, only a limited number of entities can access wholesale CBDCs, which are designed for undertaking interbank transactions and settlements. The concept of wholesale CBDCs is similar to currently available digital assets used for the settlement of interbank transactions, with the key differentiation being the use of technologies such as distributed ledger technology (DLT) and tokenization.

Wholesale CBDCs have garnered global interest with central banks. Facebook’s (albeit failed) attempt to launch its Libra cryptocurrency in 2019 was a breaking point for blockchain technology’s use in global finance, eventually spurring the development of wholesale CBDCs. Initially launched as a measure to counter private cryptocurrencies, wholesale CBDCs are fast emerging as a potential disruptor in the fintech space.

Currently, more than 30 countries are researching the use of wholesale CBDCs. Interestingly, about half of these countries are from Asia. The development of wholesale CBDCs in Asian countries has outpaced the efforts of financially strong economies such as the USA and the UK, as these CBDCs offer more tangible benefits to developing economies in Asia than their more developed counterparts.

Several Asian countries have engaged in pilot programs, and proof-of-concept runs to explore the use of wholesale CBDCs to improve the efficiency of domestic large-value transactions and cross-border transfers.

China has been at the forefront of the development and widespread testing of wholesale CBDCs. Several Southeast Asia and the Middle East countries, including India, the UAE, Thailand, and Singapore, have launched pilot programs to explore the viability of wholesale CBDCs and test interoperability for cross-border transactions.

Achieving faster and cheaper cross-border transactions is key to Asian central banks

Growth in global trade has resulted in exponential growth in cross-border transaction volumes. However, these cross-border transactions are faced with challenges. There may be involvement of potential intermediaries, varying time zones, and regulatory frictions that may cause slower settlement. Financial systems such as SWIFT have a stranglehold on the cross-border transaction ecosystem, with many of these transactions using SWIFT messaging to settle payments.

Potential intermediary fees and forex-related charges also lead to increased transaction costs. According to World Bank’s estimates, transaction costs for cross-border transactions may range up to 6% of the transfer value, a significant surcharge.

Removing friction associated with cross-border transactions is a key goal behind Asian countries’ push toward exploring wholesale CBDCs.

A growing interest in wholesale CBDCs is attracting investments in building large-value payment infrastructures in Asia, allowing for faster and more efficient cross-border transfers. Wholesale CBDCs enable central banks to transact directly with each other, removing the involvement of multiple intermediaries and resulting in quicker transaction settlement. This also results in the elimination of intermediary fees to help lower transaction costs.

Technology also adds elements of security and traceability to these digital transactions. It also offers the potential to program them by automating or restricting payments if certain conditions are met.

Challenging US dollar dominance in cross-border settlements offers additional motivation

Several Asian countries are also looking to reduce their reliance on financial settlement systems that involve US dollar reserves. Currently, most cross-border transactions involve the use of the US dollar. Countries with limited forex reserves also face the challenge of outgoing reserves, resulting in potential currency inflation and adding to the already high transaction costs.

Wholesale CBDCs offer several Asian countries, particularly those with limited US dollar reserves, an opportunity to directly transfer the amount in their local digital currencies and eliminate the need for US dollars in bilateral transactions.

Developing Asian economies, such as China and India, with significant cross-border transactions, are looking to promote their CBDCs as a potential reserve currency in the Asian region that would allow cross-border settlement directly in the digital currency. It is also in the interests of countries such as China to develop its CBDC (e-CNY) as a potential alternative to the US Dollar in cross-border trade to mitigate any potential currency-related challenges posed by economic sanctions from the USA and EU.

What’s Fueling Asia’s Drive to Develop Wholesale CBDCs by EOS Intelligence

What’s Fueling Asia’s Drive to Develop Wholesale CBDCs by EOS Intelligence

Tandem development and collaborations offer tailwinds to CBDC projects in Asia

Central banks of several Asian countries are undertaking information sharing and tandem development of CBDC infrastructures to mitigate some challenges associated with CBDC.

Recent pilot projects such as mBridge, launched by central banks of China, the UAE, Thailand, and Hong Kong, have been testing the use of a common ledger platform for real-time peer-to-peer transactions. The launch of several other projects, such as Project Mandala (involving Singapore, South Korea, and Malaysia) and Project Aber (involving Saudi Arabia and the UAE), is laying the groundwork for the widespread implementation of wholesale CBDCs.

Another potential avenue for collaboration includes forming partnerships with central banks to maintain reserves of digital cash to facilitate direct settlement. China, in particular, plans to develop e-CNY as a potential reserve currency alternative to the US dollar.

Interoperability and ownership are key challenges to CBDC implementation

While the use of wholesale CBDCs certainly comes forward as a boon, there are challenges in using these technology-driven digital currencies. CBDCs may have varying protocols, and interoperability between different CBDC frameworks remains a key challenge for implementing wholesale CBDCs for cross-border transactions.

Establishing common technical and operational standards is essential to ensure CBDC interoperability. Currently, most pilot programs involve CBDCs with common or similar technological frameworks and rules, which limit the application of wholesale CBDCs to a certain number of compatible entities.

Recent research projects are laying the groundwork for CBDCs’ compatibility with various ledgers and technical frameworks. However, significant testing will be required before compatibility can be established across the Asian region.

Ownership, governance, and regulatory oversight of wholesale CBDC technologies are other key concerns. Doubts exist over who will oversee the transactions and ledger entries, especially for any multi-party cross-border transaction.

Systems must also to adhere to anti-money laundering and counter-terrorism financing regulations. Varying financial laws may also hamper the seamless implementation of these anti-money laundering and counter-threat funding regulations across the region.

Lastly, like any digital asset, CBDCs are also susceptible to cyberattacks.

EOS Perspective

Wholesale CBDCs can potentially change the nature of cross-border transactions across Asia and globally.

We are likely to witness significant growth in test runs and pilot programs by several Asian countries to provide proof of concept for the applicability of wholesale CBDCs in countering the challenges associated with cross-border transactions. We can expect a spurt in CBDC alliances and treaties among countries with significant bilateral and intra-regional trade. Simultaneously, it may result in slightly reduced transaction volumes going through existing cross-border financial systems such as SWIFT.

The next stage of CBDC evolution is likely to coincide with the emergence of pilot programs involving multiple CBDCs with different technological frameworks, creating possibilities for easier and seamless cross-border transactions among banks or countries without any existing bilateral or regional partnerships.

These developments are likely to be aided by the development of enabling technologies such as RegTech (regulatory technologies) and SupTech (supervisory technologies), which could provide the sandbox environment for widespread testing of the CBDC systems, as well as lay the groundwork for potential regulatory systems to manage these infrastructures.

With the bulk of cross-border transactions still being conducted in the US dollar, wholesale CBDCs do not pose any imminent threat to its dominance. The US dollar’s future prospects in this role will depend on whether digital currencies such as e-CNY take off as a reserve currency, which is unlikely, at least in the short- to medium-term.

The overall success of wholesale CBDCs will depend on the level of cooperation that countries across Asia can develop over the next few years.

Lithium Discovery in Iran A Geopolitical Tool to Enhance Economic Prospects by EOS Intelligence
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Lithium Discovery in Iran: A Geopolitical Tool to Enhance Economic Prospects?

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Iran possesses significant mineral reserves, but its mining industry grapples with issues, including machinery shortages and international sanctions. The recent lithium discovery in Iran holds the potential to boost its mining sector and economy, depending on the viability of lithium extraction and processing, as well as geopolitical factors. It can serve as a bargaining chip to lift sanctions imposed by the Western world. China is poised to benefit the most from Iran’s lithium discovery due to its strategic partnership and expertise in lithium refining and extraction technologies. However, despite Iran’s strong mining potential, high infrastructure costs, technological limitations, and sanctions hinder its mining industry development.

Lithium discovery to help drive mining industry and economic upliftment in Iran

Iran is home to more than 7% of the world’s total mineral reserves and is rich in minerals, including zinc, copper, iron ore, coal, and gypsum. However, Iran’s mining industry is still nascent and barely contributes to economic growth due to a lack of necessary machinery and equipment as well as international sanctions.

In the past, Iran exported various minerals, such as iron ore, zinc, and copper, to Western countries. However, prolonged international sanctions, initially imposed in 2006 to restrain Iran’s nuclear development program, resulted in insufficient investment in the mining sector.

Lithium Discovery in Iran A Geopolitical Tool to Enhance Economic Prospects by EOS Intelligence

Lithium Discovery in Iran, a Geopolitical Tool to Enhance Economic Prospects by EOS Intelligence

Announced in March 2023, the discovery of lithium deposits holding up to 8.5 million tons of lithium in Iran, if proven accurate, is expected to strengthen the country’s mining sector and overall economic growth. Iran is the first country in the Middle East to discover lithium deposits.

Lithium is a crucial component of lithium-ion batteries used in smartphones and electric vehicles. The increasing adoption of electric vehicles is fueling the demand for lithium at a significant rate globally. There is a great need to scale up lithium mining and processing to meet the demand, particularly for the manufacturing of electric vehicles.

International Energy Agency (IEA), in its global EV outlook for 2022, indicated that about 50 new average-sized mines need to be built to fulfill the rising lithium demand for electric vehicles and meet international carbon emission goals. There are already signs of lithium shortage as demand for lithium increases globally. The lithium reserve found in Iran holds the potential to reverse the lithium supply shortage into surplus in the coming years.

Read our related Perspective:
Electric Vehicle Industry Jittery over Looming Lithium Supply Shortage

Hope for the lifting of sanctions and reestablishment of diplomatic relations

The lithium discovery in Iran is expected to redirect focus toward mining activities in the Middle East. Iran can leverage this discovery to persuade Western nations, such as the USA and the EU countries, to lift sanctions imposed for its nuclear program, support for terrorism, and human rights violations. These sanctions include restrictions on Iran’s access to the global financial system, travel bans on targeted individuals and entities involved in concerning activities, and limitations on trade in certain goods and technologies.

In August 2023, Iran and the USA reached an agreement wherein Iran intended to release detained Americans in exchange for the release of several imprisoned Iranians and access to frozen financial assets. Fulfillment of commitments demonstrates mutual trust among the countries, which could pave the way for improved relations, reduced tensions, and future diplomatic initiatives. The US government also permitted Iran to enrich uranium up to 60%. This can be interpreted as allowing Iran to meet their nuclear aspirations, which could encourage Iran to comply with the agreement signed with the USA. As cooperation and trust between the nations strengthen, this agreement could ease sanctions. Moreover, if relations continue to improve, Iran could potentially seek assistance from the USA for its lithium venture.

Also, in March 2023, Saudi Arabia and Iran, with the help of China, reached an agreement to resume their diplomatic relations, re-open embassies, and implement agreements covering economy, investment, trade, and security. With the reestablishment of cordial relations, Saudi Arabia is likely to engage in joint ventures within Iran’s mining sector, providing mutual benefits for both nations.

It can also be expected that India will seek to strengthen its ties with Iran by building strong collaborations to ensure a regular lithium supply, considering that India is one of the largest importers of lithium-ion batteries. Iran and India share strong and multifaceted relations across various areas, such as trade, energy, connectivity, culture, and strategic cooperation. As India strives to transition to renewable energy sources and reduce its carbon footprint, access to lithium reserves from Iran could facilitate the development and deployment of energy storage solutions, such as grid-scale batteries and off-grid systems.

Potential to disrupt the global lithium race and geopolitical relations

The announcement of lithium deposits in Iran is likely to impact the global competition for lithium resources significantly. It holds the power to disrupt the existing power dynamics in the global lithium race, as it is estimated to be the second-largest lithium reserve in the world after Chile.

Many countries compete to control lithium supply chains due to its strategic importance, particularly in the EV industry. A few countries dominate the global lithium production, including Australia, Chile, and China. The emergence of Iran as a significant lithium producer could diversify the global supply chain. China, the largest importer and processor of lithium and manufacturer of lithium batteries, holds a substantial share of the lithium market. China is particularly reliant on foreign lithium suppliers, including Australia, Brazil, Canada, and Zimbabwe, accounting for around 70% of its total lithium imports.

With China’s well-established economic and political relations with Iran, there is potential for collaborative ventures in the clean energy transition supply chain. In addition, China’s expertise in technological advancements in lithium-related technologies, particularly lithium-ion battery manufacturing, purification and refinement of lithium, battery management systems, and development of battery materials, will likely play a crucial role in gaining access to Iranian lithium. Increased access to lithium will reduce its dependence on the current lithium suppliers and gain dominance in the lithium supply, impacting the trade balance and economic growth of countries supplying lithium to China.

At the same time, Australia, which stands out as China’s current primary source of lithium, exporting around 90% of its lithium to China, might encounter political and economic challenges. Australia, being a close ally of the USA, is likely to face pressure to curb its lithium exports to China, aiming to limit China’s access to sources of lithium. Chile, also being the key supplier of lithium to China, may face similar pressure from the USA. The USA is likely to exert such pressures, as China’s strong position could undermine the USA’s technological competitiveness and leadership in the EV market, accelerating the existing tensions and disrupting power dynamics in the global lithium race.

Major influencing countries such as the USA, Canada, France, Japan, Australia, the UK, and Germany also formed the Sustainable Critical Minerals Alliance in 2022. The alliance aims to secure supply chains of critical minerals, including lithium, nickel, and cobalt, from countries with more robust environmental and labor standards to reduce dependency on China. Such initiatives are expected to impact China’s dominant global lithium supply chain position.

Inevitably, Iran’s lithium discovery and China’s potential involvement in securing access to the resource can influence international relations, particularly between China and the USA, and China and Australia.

China to deepen ties with Iran

China and Iran have established an extensive partnership focused on China’s energy needs and Iran’s abundant resources. China has remained Iran’s primary trading partner for more than a decade. Their relationship grew stronger, specifically after the USA pulled out of the nuclear agreement and reintroduced sanctions on Tehran in 2018. Both China and Iran are confronted with sanctions from the USA, which is expected to strengthen collaboration between the two to mitigate the impact of sanctions and to counterbalance US influence in the Middle East and Asia.

In March 2021, China and Iran signed a 25-year strategic collaborative agreement to reinforce the countries’ economic and political alliance, particularly focusing on investment in Iran’s energy and infrastructure industry and assuring regular oil and gas supply to China. This is expected to further strengthen the relations between Iran and China.

China, the most trusted strategic ally of Iran and a significant lithium producer will likely act as a critical partner in building up Iran’s lithium industry. As the global leader in electric vehicle adoption (in absolute terms), the demand for lithium in China has increased dramatically in recent years. Also, China stands out as the only trade partner capable of accessing and refining lithium on a large scale. This will strengthen the Iran-China relations further.

High infrastructure costs and lack of FDI to challenge the Iranian mining sector

Despite the presence of a vast mining potential in the country, certain factors such as inadequate access to essential machinery and equipment, lack of exploration facilities, lack of sufficient infrastructure and investment, absence of advanced technologies, and shortage of financial resources limit the growth of the mining sector in Iran.

Lack of access to new cutting-edge production technologies, exacerbated by international sanctions, results in inefficient utilization of resources, particularly water, fuel, and electricity in mining operations. In addition, high production costs, mandatory pricing, and lack of skilled labor further pose obstacles in mining operations. This, together with the fact that the lithium extraction process is generally expensive and time-consuming, has led to various small and medium-sized mines opting to cease their operations.

The absence of foreign investment due to international sanctions poses challenges in conducting mining operations in the country. The government seeks to attract foreign investment in the mining sector, a difficult task amid structural challenges, human rights abuse accusations, and international sanctions.

Exploitation of lithium reserves discovered in the country will be difficult due to the lack of advanced technologies required for extraction, processing, and refining. The assessment of lithium grade and its economic feasibility will play a crucial role in determining whether to exploit the reserve.

EOS Perspective

The scale of lithium reserves discovered in Iran is significant, but the exploitation of the mineral is not likely to happen in the near future. Its viability, economic feasibility, actual quantity, and grade are yet to be ascertained. Also, the country does not have access to the necessary technologies required to process and refine lithium, so it has to rely on foreign investors.

Foreign investment in Iran is hindered by the sanctions imposed by the USA and the EU against Iran’s nuclear development program. Back in 2015, Iran agreed to scale down its nuclear program and allow broader access to international inspections to its facilities in return for billions of dollars in sanctions relief. But that ended in 2018 when the USA withdrew from the deal. With the recent agreement signed in 2023, there is hope that it could pave the way for the relaxation of sanctions on Iran.

Additionally, considering lithium’s pivotal role in multiple industries and concerns about China’s dominant power in the lithium supply chain, the US government might consider easing sanctions. EU is not likely to ease or lift sanctions and invest in Iran immediately due to uncertainties about the viability of the reserve, its impact on the environment during extraction, and lack of energy investments in the country. However, the EU may consider easing sanctions in the future if the USA moves in that direction.

Russia and China, having economic and diplomatic ties with Iran, are more likely to show interest in Iran’s lithium discovery. Russia is focusing on expanding its presence in the lithium market to meet the increasing demand for lithium in vehicles and energy storage systems. As a step in this direction, in December 2023, Rosatom, a Russian state corporation, signed a deal to invest US$450 million in Bolivia to construct a pilot lithium plant. Russia is also likely to explore investment opportunities in Iran’s lithium sector.

China is expected to benefit the most from the lithium discovery in Iran, considering its longstanding relations with Iran. At the same time, Iran is also more likely to be eager to collaborate with China, considering China’s strength in the lithium industry and international sanctions.

However, Iran should not solely rely on China, considering China’s track record of engaging in debt-trap diplomacy to exert influence and dependence, particularly over low-income countries. For instance, in 2013, China launched its infamous Belt and Road Initiative (BRI), under which it started funding and executing several infrastructure projects in developing and underdeveloped countries across the globe. However, over the years, the BRI initiative has been criticized for resulting in an increased dependence and trapping of the partner countries in heavy debt through expansive projects, non-payment of which may lead to a significant economic and political burden on them. A collaborative agreement spanning 25 years was also signed by China with Iran, primarily focusing on investing in Iran’s energy and infrastructure sectors, facilitating Iran’s involvement in the BRI. Iran could also fall into a similar debt trap, having no viable alternative partner, a fact that China can take advantage of.

Read our related Perspective:
China’s BRI Hits a Road Bump as Global Economies Partner to Challenge It

Many countries are likely to be interested in investing and building strong collaboration with Iran if the reserves’ viability is confirmed and the grade and quality of lithium are suitable for use. This could change the entire dynamics of the lithium supply chain and also lead to a decrease in lithium prices, which have been skyrocketing due to a significant surge in global lithium demand.

Opioid Epidemic in the USA – Is the War to Curb the Crisis Turning Futile? by EOS Intelligence
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Opioid Epidemic in the USA – Is the War to Curb the Crisis Turning Futile?

The opioid crisis in the USA is believed to have begun in the 1990s with the overprescription of pain-relieving medicines. However, the epidemic gained steam recently with the availability of cheap heroin, fentanyl, and other synthetic opioids in the USA that foreign drug cartels from Mexico and China predominantly provide. According to a report by the US Congress Joint Economic Committee (JEC), the economic burden caused by the opioid crisis in the USA is to the tune of US$ 1.5 trillion in 2020, a 37% increase from 2017 when the CDC last reported it. This translates to 7% of the country’s GDP in 2020, indicating that the problem cannot be ignored.

The death toll owing to the opioid epidemic has tripled from 2016 to 2021, as per research by Yale University. In terms of human deaths, over 1,500 Americans die per week from taking some form of opioid. The overall death toll owing to opioid overdose was 80,411 in 2021.

Although the US government has taken initiatives to curb the crisis, such as increasing the federal, state, and local governments’ investments in drug treatment and prevention programs, a lot more needs to be done in the field of foreign policy and drug approval control, among others.

Federal action to control the opioid epidemic is underway, but more efforts are needed

From funding treatment programs and addiction prevention tools to focusing on a harm-reduction approach that lays importance on life-saving drugs and tools that could reverse opioid overdose, the US government has recently taken significant measures to curb the opioid crisis in the country.

Government grants and monetary aid

To begin with, the federal, state, and local governments have increased funding for the treatment and prevention programs for opioid use disorder. The Comprehensive Addiction and Recovery Act was passed in 2016 to combat the opioid crisis in the USA. It was a six-pronged strategy with pillars: prevention, treatment, recovery, law enforcement, criminal justice reform, and overdose reversal.

In monetary grants provided by the federal government, a sum of US$1.8 billion was given to states to combat the opioid crisis in 2019. Grants of US$900 million were given to the CDC over three years to facilitate the monitoring of overdose data and subsequently design strategies for treatment in states and counties/localities.

In addition, US$932 million was given to all 50 states in State Opioid Response grants in 2019. In 2021, the Biden government and the American Rescue Plan Act (ARP) provided US$5.5 billion for mental health and substance abuse prevention. In 2022, the sum was increased to US$1.5 billion for the State Opioid Response grants.

Apart from grants given by the federal government, some states and counties/localities utilized the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) from the ARP for developing programs to improve behavioral health, prevent opioid addiction, and treatment strategies for opioid use disorder. The SLFRF was to the tune of US$350 billion that was given to the state, territorial, local, and tribal governments across the USA to help them respond to and recover from COVID-19.

Drug control policies

In addition to monetary aid, the federal government brought about changes in drug control policies. For example, in April 2022, the Biden government introduced the National Drug Control Strategy that focused on a harm reduction approach that advocates using life-saving tools such as naloxone, drug test strips, and syringe services programs. It also promotes evidence-based treatment for those who are at a high risk of an overdose and improvement of the data and research systems for seamless development of drug policies.

With the FDA approval of the naloxone nasal spray Narcan in March 2023, it became the first OTC drug in the USA to reverse fentanyl overdoses. Narcan began to be sold to the public by September 2023.

Foreign policies

The US federal government has worked together with the government of Mexico for decades to curb the flow of illicit drugs entering the USA. To cite an example, through the Merida Initiative, the USA gave Mexico monetary aid of US$3.5 billion between 2008 and 2021 to counter the smuggling of illegal drugs across borders.

In the second half of 2021, the Biden government announced synthetic-opioid peddling a national emergency. The federal government also signed two executive orders that allowed the Biden administration to sanction individuals and bodies involved in the creation and distribution of fentanyl.

The 2022 National Drug Control Strategy also laid down policies to minimize the supply of illegal drugs through domestic and international collaboration.

In the second half of 2023, the federal government sanctioned 25 companies and individuals based in China who were suspected to be associated with the production of fentanyl precursor chemicals. Furthermore, the Biden government added China to the US list of countries involved in the creation and distribution of illegal drugs. This list comprises 22 other countries, such as Colombia, Mexico, and India.

In addition to this, the Biden government has continued to put pressure on Mexico to seize fentanyl precursor chemicals obtained from China and eradicate secret laboratories in Mexico. In November 2023, president Biden agreed with the Chinese and Mexican presidents separately to improve bilateral cooperation to prevent the production and dissemination of illegal fentanyl.

Domestic control measures

Apart from international efforts, federal action is being taken to control illegal opioid dissemination domestically. For instance, regulations have been put in place to revise the limits on opioid prescriptions, to prioritize seizing fentanyl, and to create widespread awareness of fentanyl’s lethality. Compared to 2021, the Drug Enforcement Administration of the USA seized double the quantity of fentanyl in 2022, and it announced that 60% of fake prescription drugs possess a lethal dose of fentanyl.

EOS Perspective

The JEC estimates of the US opioid crisis cost of US$1.5 trillion in 2020 speak volumes about the scope and size of the federal action needed to combat the epidemic. The magnitude of the opioid crisis in the USA calls for concrete action from the federal, state, and local governments to decrease both the death toll and the economic burden.

The federal government should promote the increase of access to evidence-based treatment by eradicating the barriers to healthcare and continue to embrace the “treatment over punishment” approach, focusing on medical attention and support instead of imprisonment. Another step is to enable the Medicaid expansion of the 12 states that have yet to expand Medicaid under the Affordable Care Act. This will lead to higher access to treatment, thereby minimizing the fatality rate.

Furthermore, the federal government should fund the Overdose Data to Action program for the expanded opioid data collection on overdose deaths in all US states. This will aid researchers and policymakers in arriving at the socioeconomic cost and aftermath of the opioid epidemic to understand better and resolve the problem. The federal government should also take initiatives to reduce the societal stigma around substance abuse for higher enrollment in treatment services.

Moreover, the federal government needs to address Narcan’s cost and accessibility challenges in the USA for better reach and impact. More R&D, increased border inspection, better overdose prevention, and employee assistance programs are instrumental in controlling the opioid epidemic in a better way.

Allocation of funds, increasing access to treatment, and enhancing the understanding of the scale of the epidemic are crucial steps in decreasing the human and economic toll of the opioid crisis in the USA.

Nuclear Fusion – Reality or a Fairy Tale by EOS Intelligence
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Commercial Nuclear Fusion – Reality or a Fairy Tale?

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Nuclear fusion has recently gained attention as a potential source of clean energy. It was a result of the US National Ignition Facility in California achieving a major milestone in December 2022 in which researchers were able to produce more energy than was used to ignite it for the first time. Several countries are cooperating in the world’s largest fusion experiment project called ITER, focused on the construction and operation of an experimental fusion reactor located in France. Large-cap companies such as Google and the ministries regulating energy policies across the globe are also investing in fusion energy projects and start-ups to promote fusion energy generation. Despite huge investments, commercializing fusion energy still has a long way to go due to certain technological and operational challenges associated with the generation of this type of energy.

Ever-increasing carbon emissions due to the ongoing rise in energy consumption are driving the need for accelerating energy generation from renewable sources. As of October 2022, over 40% of global carbon emissions were caused by power generation. As per the International Energy Agency, carbon emissions from energy generation increased by 0.9% in 2022, in comparison with 2021, to reach 36.8GT.

Additionally, the energy crisis caused by the Russia-Ukraine war, particularly in Europe, further augmented the need for energy generation using renewable sources. The surge in energy demand from households and industries is putting pressure on the existing energy supplies, thus resulting in high energy prices.

So far, solar and wind energy sources have been prominently used across countries to meet the rapidly increasing energy demand. Nuclear fusion is another alternative renewable source as it does not emit carbon emissions or produce long-lived radioactive waste products, unlike nuclear fission.

Nuclear fusion is an energy-intensive process and requires high temperatures for fusion reaction. In the nuclear fusion process, energy is released by combining two atomic nuclei into one heavier nucleus. The released energy is then captured and converted into electricity by a fusion machine. This process is also the key source of energy in the sun and other stars.

Nuclear fusion releases around four million times more energy as compared to coal, gas, or oil, and four times more than nuclear fission technology. Nuclear fusion can provide energy to an extent that can power up homes, cities, and whole countries.

Current state of the nuclear fusion energy

The potential of generating nuclear fusion energy has been recognized since the 1950s. Countries across geographies have been involved in nuclear fusion research, led by the EU, USA, Russia, and Japan, along with vigorous programs underway in China, Brazil, Korea, and Canada. Various experimental fusion devices have been designed and constructed to advance and transform the way fusion energy is generated. These include tokamaks, stellarators, and laser-based technology devices. Tokamaks and stellarators have been used more commonly for fusion energy research experiments.

Some of the tokamaks and stellarators built across countries for generating fusion energy include the Joint European Torus (JET), started in the UK in 1978, the Wendelstein 7-X stellarator, started in Germany in 1994, Korea Superconducting Tokamak Advanced Research (KSTAR) started in South Korea in 1995, the Mega Amp Spherical Tokamak- (MAST) initially started in the UK in 1997 and further upgraded to MAST-U in 2013, and Experimental Advanced Superconducting Tokamak (EAST) started in China in 2000, among others. Six countries, including China, India, Japan, Korea, Russia, the USA, as well as the EU, are cooperating in the world’s largest fusion experiment, ITER, an experimental fusion reactor currently under construction in France through EURATOM, the European Atomic Energy Community. ITER idea was first launched in 1985 and established in 2007. Its first experiment was scheduled to start in 2025 but is delayed due to Covid-19 disruptions. It is aimed at producing 500MW of fusion power from 50MW of input heating power.

Further, in 2017, China launched the China Fusion Engineering Test Reactor (CFETR) project as a follow-up to the ITER. This tokamak device is aimed at producing an extremely powerful magnetic field to confine plasma and generate fusion energy. This magnetic field can contain and control hydrogen gas ten times hotter than the core of the sun. CFETR is aimed at producing a peak power output of 2GW once completed in 2035, bridging the gap between scientific experiments and commercial use.

Extensive progress has been noticed in studying laser-based technology for fusion energy generation. Some of the facilities that use laser technology to produce fusion energy include the National Ignition Facility (NIF) at the Lawrence Livermore National Laboratory (LLNL) in the USA and the Laser Mégajoule (LMJ) in France.

The International Atomic Energy Agency (IAEA) also supports its member states in research activities related to fusion energy generation. It also organizes various workshops on fusion power plant concept demonstrations, technical meetings, and coordinates research activities.

Nuclear Fusion – Reality or a Fairy Tale?by EOS Intelligence

Nuclear Fusion – Reality or a Fairy Tale? by EOS Intelligence

Some of the breakthroughs achieved in fusion energy experiments to date

There has been significant progress in the research and development activities focused on nuclear fusion energy generation. Researchers are continuously emphasizing optimizing the condition of plasma through changes in density, temperature, and confinement time to achieve the required level of performance for a power plant. Several nuclear reactors were able to sustain high temperatures during the fusion process. For instance, in January 2022, the EAST reactor in China sustained temperatures of 126 million degrees Fahrenheit, which is nearly five times hotter than the sun, for 17 minutes, and thus, broke the record for longest sustained nuclear fusion.

In February 2022, the Joint European Torus (JET) achieved a record performance for sustained fusion energy of 59MJ over five seconds.

Also, in September 2022, the Korea Superconducting Tokamak Advanced Research (KSTAR) experiment achieved plasma temperatures of 120 million kelvins for up to 20 seconds, a key demonstration of simultaneous high temperatures and plasma stability.

Recently, in December 2022, a major breakthrough was achieved at the US National Ignition Facility in California by using inertial confinement fusion, which released more energy than was pumped in by the lasers for the first time in the world. The laser shot released 3.15MJ of energy in comparison with the 2.05MJ pumped to the hydrogen isotope pellet by lasers. This breakthrough is likely to pave the way for abundant clean energy in the future.

Breakthroughs driving further investment in fusion energy R&D

Breakthroughs achieved over the past years in various projects have attracted significant investment by both the government and private sector in the research and development of fusion energy. For instance, in February 2023, Israel’s Ministry of Energy (MoE) proposed to provide US$11.5 million to establish a national nuclear fusion institute in Israel. This initiative includes major universities of Israel, namely the Hebrew University of Jerusalem, Ben-Gurion University of the Negev, the Technion and Tel Aviv University, the Weizmann Institute of Science, as well as NT-Tao, an Israel-based start-up which is engaged in the development of a compact system for nuclear fusion.

Similarly, in October 2022, the UK government announced to provide US$249.6 million of funding for the Spherical Tokamak for Energy Production (STEP) project’s first phase, which will include concept design by the UK Atomic Energy Authority by 2024. STEP is a program aimed at designing and constructing a prototype fusion energy plant by 2040.

In March 2022, the US Department of Energy (DOE) proposed to provide around US$50 million of federal funding to support US scientists involved in conducting experimental research in fusion energy science. Of this, US$20 million was to support tokamak facilities and US$30 million to support fusion research to improve the performance of fusion and increase the duration of burning plasma. In addition to this, the US government’s budget for the financial year 2023 included US$723 million for the Office of Science Fusion Energy Sciences research in enabling technologies, materials, advanced computing and simulation, and new partnerships with private fusion efforts. This amount included US$240 million for the ongoing construction of ITER tokamak. Also, the budget for the financial year 2024 includes US$16.5 billion to support climate science and clean energy innovation, including US$1 billion to advance fusion energy technology.

Private funding in fusion companies has also increased significantly in the recent past. As per the Fusion Industry Association Report 2022 published in July, private sector funding amounted to about US$4.8 billion in total, witnessing an increase of 139% since 2021. Fusion companies also received an additional US$117 million in grants and other funding from governments. Big resource groups such as Equinor, based in Norway, Google, and Chevron, based in the USA, have also invested in fusion energy research. For instance, in July 2022, Chevron, together with Google and Japan-based Sumitomo Corporation, invested in TAE Technologies, a US-based nuclear fusion start-up, in a US$250 million fundraising round to build its next-generation fusion machine.

In addition to this, entrepreneurs, including Bill Gates and Jeff Bezos, are also providing financial support. In December 2021, Commonwealth Fusion Systems (CFS) raised around US$1.8 billion in series B funding from various key investors, including Bill Gates, DFJ Growth, and Emerson Collective, among others, to commercialize fusion energy.

Companies engaged in nuclear fusion energy generation

More than 35 companies are engaged in fusion energy generation for commercial use, such as Tokamak Energy, General Fusion, Commonwealth Fusion Systems, Helion Energy, Zap Energy, and TAE Technologies, among others. These fusion companies are increasingly emphasizing collaborations and experimenting with new technologies to produce fusion energy and make it available for commercial use.

In March 2023, Eni, an energy group based in Italy, and Commonwealth Fusion Systems (CFS) based in the USA, a spin-out of the Massachusetts Institute of Technology (MIT), signed a collaboration agreement aimed at accelerating the industrialization of fusion energy.

In February 2023, TAE Technologies achieved a breakthrough in its hydrogen-boron fusion experiment in magnetically confined fusion plasma. This experiment was a collaboration between Japan’s National Institute for Fusion Science (NIFT) and TAE Technologies.

Also, in February 2023, Tokamak Energy proposed to build a new fusion energy advanced prototype at the United Kingdom Atomic Energy Authority’s (UKAEA) Culham Campus, UK, using power plant-relevant magnet technology. It also built the first set of high-temperature superconducting magnets for testing nuclear fusion power plants. This supermagnet can confine and control extremely hot plasma created during the fusion process.

Certain breakthroughs achieved over the years in the nuclear fusion energy field have encouraged the entry of various start-ups across geographies. For instance, Princeton Stellarators, a US-based start-up focused on building modular, utility-scale fusion power, was founded in 2022. Another start-up named Focused Energy, a Germany-based fusion company, was founded in 2021 to develop a fusion power plant based on laser and target technology. In September 2021, the company raised US$15 million in seed funding led by Prime Movers Lab, along with additional investment from various entrepreneurs.

Start-ups are also emphasizing raising funds to create new fusion technologies and make a significant impact on the industry. In February 2023, NT-Tao, an Israel-based nuclear fusion start-up founded in 2019, raised US$22 million in a series A funding round aimed at developing a high-density, compact fusion reactor to provide clean energy.

Additionally, in January 2023, Renaissance Fusion, a France-based start-up founded in 2020, raised US$16.4 million in a seed funding round led by Lowercarbon Capital. The company is engaged in the development of a stellarator reactor for fusion energy generation.

Challenges to nuclear fusion energy generation

Although a lot of companies and governments across geographies are investing in nuclear fusion energy generation experiments, building full-scale fusion-generating facilities requires advanced engineering, advanced vacuum systems, and superconducting magnets. One of the key challenges in the fusion process is the requirement of extremely high temperatures to produce energy. Also, it becomes difficult to control plasma at such high temperatures.

Additionally, the lack of availability of materials that can extract heat more effectively while withstanding their mechanical properties for a longer duration is another challenge affecting the fusion energy generation process.

Moreover, fusion research projects are also facing capital and financing challenges due to high upfront costs, return uncertainty, and long project duration. The capital investment involved in building and operating a fusion reactor is high due to complex technology that requires significant investment in R&D, high energy requirements, use of advanced materials, and regulatory requirements aimed at ensuring the safety and low environmental impact of the fusion reactor. The cost of building a fusion reactor ranges between tens to hundreds of billions of dollars. It can vary depending on various factors such as size, design, location, materials, and technology used.

Since fusion energy is a new technology, there is uncertainty about when nuclear fusion will become a viable and cost-effective energy source, such as other energy sources, including wind and solar. This makes it difficult for investors to invest in fusion projects and predict the return on investment.

However, ongoing research and development activities aimed at building advanced, highly efficient, and cost-effective fusion reactors and commercializing fusion energy generation at a large scale are likely to overcome these challenges in the long term.

EOS Perspective

Accelerating climate crisis is driving the investment in nuclear fusion research and development as it does not create carbon emissions and long-lasting nuclear waste products. Over the past several years, various fusion research projects, university programs, and start-ups have achieved breakthroughs in the fusion energy field. The most recent breakthrough at the US National Ignition Facility in California, which released more energy than was pumped in by the lasers, has paved the way to the nuclear fusion gold rush and sparked excitement among investors, companies, and researchers.

Many fusion companies, such as Commonwealth Fusion Systems and TAE Technologies, are claiming to exceed breakeven by 2025 and commercialize fusion energy by 2030. Billions of dollars have been invested in nuclear fusion energy generation experiments but no company or projects have been able to achieve breakeven yet.

Several new fusion projects are planning on using advanced materials and putting a new generation of supercomputers to tweak the performance of ultrahigh-temperature plasma, but commercializing fusion energy is still far from reality. Moreover, the fusion process is very complex, requires extreme temperatures for fusion reactions, and involves huge energy costs. Thus, alternative clean energy sources such as wind and solar will likely remain the near-term methods to meet sustainable energy demand. At the same time, it should be expected that the increasing government support and investment by large cap organizations and entrepreneurs are likely to help set up viable fusion power plants in the future.

Is ChatGPT Just Another Tech Innovation or A Game Changer by EOS Intelligence
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Is ChatGPT Just Another Tech Innovation or A Game Changer?

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ChatGPT, a revolutionary AI-based conversational chatbot, has been making headlines around the world. The AI-based tool can answer user queries and generate new content in a human-like way. By automating tasks such as customer support and content creation, ChatGPT has the potential to revolutionize many industries, resulting in a more efficient digital landscape and an enhanced user experience. However, the technology is not without its risks and poses a number of issues, such as creating malicious content, copyright infringement, and other moral issues. Despite these challenges, the possibilities for ChatGPT are infinite, and with the advancement of technology, the opportunities it presents will only continue to expand.

ChatGPT is an AI-based question-and-answer chatbot that responds to user queries in a conversational way, just like how humans respond. OpenAI, a US-based research and development company, launched ChatGPT in November 2022. Since then, ChatGPT has garnered increased attention and popularity worldwide. The tool surpassed over 1 million users within five days and 100 million users within two months of launch.

ChatGPT has become popular due to its capability to answer queries in a simple and conversational manner. The tool can perform various functions, such as generating content for marketing campaigns, writing emails, blogs, and essays, debugging code, and even solving mathematics questions.

OpenAI’s ChatGPT works on the concept of generative AI and uses a language model called GPT3 – a third-generation Generative Pre-trained Transformer. The AI chatbot has been fed with about 45 terabytes of text data on a diverse range of topics from sources such as books, websites, and articles and has been trained on a set of algorithms to understand relationships between words and phrases and how it is used in context. This way, the model is able to develop an understanding of languages and generate answers. ChatGPT uses a dialog format, asks follow-up questions for clarification, admits mistakes, and is capable of dismissing inappropriate or dangerous requests.

ChatGPT also has a simple user interface, allowing communication through a plain textbox just like a messaging app, thus making it easy to use. Currently, ChatGPT is in beta testing, and users can use it for free to try and provide feedback. However, the free version is often inaccessible and out of capacity due to the increasing traffic.

In February 2023, OpenAI launched a pilot subscription plan named ChatGPT Plus, starting at US$20 per month, which is available to its customers in the USA. The subscription plan provides access to ChatGPT even during peak times and provides prior access to any new features. OpenAI is also testing ChatGPT to generate videos and pictures using its DALLE image-generating software, which is another AI tool developed by OpenAI to create art and images from text prompts. OpenAI also plans to launch a ChatGPT mobile app soon.

How could ChatGPT help businesses?

One of the most impactful areas where ChatGPT can make a difference is customer support. The AI tool can handle a large volume of consumer queries within a short time frame and give accurate responses, which can boost work efficiency and reduce employees’ workload.

In addition, the tool can also be employed to answer sales-related queries. By training ChatGPT to understand product information, pricing, and other details, businesses can provide a seamless sales experience for customers. ChatGPT can also analyze user data and behavior and can assist customers to find the products they are looking for, and give product recommendations leading to a more tailored and enjoyable shopping experience. ChatGPT can be incorporated into websites to engage visitors and help them find the information they need, which can help in lead generation.

Another potential benefit of ChatGPT is its ability to automate content generation. ChatGPT can generate unique and original content quickly, making it an effective tool for creating marketing materials such as email campaigns, blogs, newsletters, etc.

ChatGPT could be used in a number of industries, such as travel, education, real estate, healthcare, information technology, etc. For instance, in the tech industry, ChatGPT can write programs in specific programming languages such as JavaScript, Python, and React, and can be very helpful to developers in generating code snippets and for code debugging.

In healthcare, the tool can be used in scheduling appointments, summarizing patient’s health information based on previous history, assisting in diagnostics, and for telemedicine services.

In the education sector, ChatGPT can be used to prepare teaching materials and lessons and to provide personalized tutoring classes.

These are just a few applications of ChatGPT. As generative technology continues to evolve, there may be many other potential applications that can help businesses achieve their goals more efficiently and effectively.

Is ChatGPT Just Another Tech Innovation or A Game Changer by EOS Intelligence

ChatGPT’s output may not be always accurate

While ChatGPT offers several benefits and advantages, the tool is not without limitations. ChatGPT works on pre-trained data that cannot handle nuances or other ambiguities and thus may generate answers that are incorrect, biased, or inappropriate.

Moreover, ChatGPT is not connected to the internet and cannot refer to an external link to respond to queries that are not part of its training. It also does not cover the news and events after 2021 and cannot provide real-time information.

Another major limitation is that the tool is often out of capacity due to the high traffic, which makes it inaccessible. There are also other potential risks associated with these generative AI tools. Some of the threats include writing phishing emails, copyright infringement, generating abusive content or malicious software, plagiarism, and much more.

ChatGPT is not the first or only AI chatbot

While ChatGPT has garnered most of the attention in the last few months, it is neither the first nor the only AI-based chatbot in the market. There are many AI-based writers and AI chatbots in the market. These tools vary in their applications and have their own strengths and weaknesses.

For instance, ChatSonic, first released in 2020, is an AI writing assistant touted as the top ChatGPT alternative. This AI chatbot is supported by Google, has voice dictation capabilities, can generate up-to-date content, and can also generate images based on text prompts. However, ChatSonic has word limits in its free as well as paid versions, which makes it difficult for users who need to generate large pieces of text.

Similarly, Jasper is another AI tool launched in 2021, which works based on the language model (GPT-3) similar to ChatGPT. Jasper can write and generate content for blogs, videos, Twitter threads, etc., in over 50 language templates and can also check for grammar and plagiarism. Jasper AI is specifically built for dealing with business use cases and is also faster and more efficient and generates more accurate results than ChatGPT.

YouChat is another example, developed in 2022 by You.com, and running on OpenAI GPT-3. It performs similar functions as ChatGPT – responding to queries, solving math equations, coding, translating, and writing content. This chatbot cites source links of the information and acts more like an AI-powered search engine. However, YouChat lacks an aesthetic appeal and may generate results that are outdated at times.

ChatGPT-styled chatbots to power search engines

While a lot of buzz has been created about this technology, the impact of AI-based conversational chatbots is yet to be seen on a large scale. Many proclaim that tools such as ChatGPT will replace the traditional search method of using Google to obtain information.

However, experts argue that it is highly unlikely. While AI chatbots can mimic human-like conversation, they need to be trained on massive amounts of data to generate any kind of answers. These tools work on pre-trained models that were fed with large amounts of data sourced from books, articles, websites, and many more resources to generate content. Hence, real-time learning and answering would be cost-intensive in the long run.

Moreover, ChatGPT’s answers may not always be comprehensive or accurate, requiring human supervision. ChatGPT may also not be very good at solving logical questions. For instance, when asked to solve a simple problem – “RQP, ONM, _, IHG, FED, find the missing letters”, ChatGPT answered incorrectly as “LKI”. Similarly, when provided a text prompt, “The odd numbers in the group 17, 32, 3, 15, 82, 9, 1 add up to an even number”, the chatbot affirmed it, which is false. Moreover, the AI chatbot does not cover news after 2021, and when asked, “Who won the 2022 World Cup?” ChatGPT said the event has not taken place.

On the other hand, Google uses several algorithms to rank web pages and gives the most relevant web results and comprehensive information. Google has access to a much larger pool of data and the ability to analyze it in real time. Additionally, Google’s ranking algorithms have been developed over years of research and refinement, making them incredibly efficient and effective at delivering high-quality results. Therefore, while AI chatbots can be useful in certain contexts, they are unlikely to replace traditional search methods, such as Google.

However, leading search engines are looking to incorporate ChatGPT into their search tools. For instance, Microsoft is planning to incorporate ChatGPT 4, a faster version of the current ChatGPT version, into its Bing Search engine. Since 2019, the company has invested about US$13 billion in OpenAI, the parent company of ChatGPT.

In February 2023, Microsoft also incorporated ChatGPT into its popular office software Teams. With this, users with Teams premium accounts will able to generate meeting notes, access recommended tasks, and would be able to see personalized highlights of the meeting using ChatGPT. These add immense value to the user.

In February 2023, China-based e-commerce company Alibaba also announced its plan to launch its own AI chatbot similar to ChatGPT. Similarly, Baidu, a China-based internet service provider, launched a chatbot named “Ernie” in its search engine in March 2023.

Amidst the increasing popularity of ChatGPT, Google has also started working on a chatbot named “Bard” based on its own language model, Lambda. The company is planning to launch more than 20 new AI-based products in 2023. In February 2023, Google invested about US$400 million in Anthropic AI, a US-based artificial intelligence startup, which is testing a new chatbot named Claude. Thus, the race to build an effective AI-enabled search engine has just begun, and things have to unfold a bit to learn more about how chatbots can modify web searches.

On the other hand, AI technologies such as ChatGPT are sure to leave an impact on how businesses operate. With the global economy slowing down, resulting in low business margins, many businesses are looking to cut down costs to increase profitability.

ChatGPT could be extremely beneficial to companies looking to automate various business tasks, such as customer support and content generation. The tool can be integrated into channels, including websites and voice assistants. While this sounds beneficial, there is also a likelihood of the technology displacing some jobs such as customer service representatives, copywriters, research analysts, etc.

However, ChatGPT will not be replacing the human workforce completely since many business tasks require creative and critical thinking skills and other traits such as empathy and emotional intelligence that only humans have. This technology is expected to pave the way for new opportunities in various fields, such as software engineering and data analysis, and allow employees to focus on more value-added tasks instead of routine, mundane tasks, ultimately boosting productivity.

EOS Perspective

With their remarkable ability to generate human-like conversations and high-quality content, generative AI tools, such as ChatGPT, are sure to be touted as a game-changer for many businesses. The advancements in generative AI are expected to have a significant impact on various business tasks such as customer support, content creation, data analysis, marketing and sales, and even decision-making.

Investors are slowly taking note of the immense potential the technology holds. It is estimated that generative AI start-ups received equity funding totaling about US$2.6 billion across 110 deals in 2022, which echoes an increasing interest in the technology.

The adoption of generative AI technologies is poised to increase, especially in business processes where a human-like conversation is desirable. Industries such as e-commerce, retail, and travel are likely to embrace this technology to automate customer service tasks, reduce costs, and increase efficiency. In addition, generative AI is likely to become an indispensable part of industries such as finance and logistics, where high levels of accuracy and precision are required. Media and entertainment companies can also benefit from this technology to quickly generate content such as articles, videos, and audio.

That being said, generative AI is not without its risks, and the technology could be used to create fake and other discriminatory information. Hence, there is an inevitable need to ensure that generative AI models are trained and deployed in an ethical and responsible manner. Despite these challenges, there is increased research and significant activity going on in the field of generative AI, especially with regard to combining the capabilities of chatbots and traditional search engines.

The current chatbots will continue to evolve and will lead to the creation of even more advanced and sophisticated models. The popularity of generative AI tools such as ChatGPT is unlikely to wane, and the technology is here to stay, with the potential to create better prospects for business and a brighter future for society.

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