China vs. USA – Helping Hand

CAC executes US trade policy

• China is doubling down on its policy to prevent US chips from being used inside China, further cementing my view that Chinese regulators are doing more to further the goals of US trade policy than the Department of Commerce could ever hope to achieve onits own.
• China has moved to enforce chip controls in order to ensure that illicit imports of Nvidia and AMD chips for AI no longer make it into the country.
• Previously, these rules were not enforced, and as long as the import duty was paid, these shipments were simply waved through.
• However, the Cyberspace Administration of China (CAC) has recently been encouraging local companies to use homegrown options to train and run inference.
• This encouragement has become more forceful in recent weeks, and the move to block illicit imports is another sign of increasing enforcement of the self-reliance policy.
• This included a demand by the CAC to Chinese companies working on AI to cease testing on foreign silicon and to cancel their orders for US silicon.
• There is a divergence of opinion in the market in terms of how good Chinese AI is and what threat it represents to Western dominance of the industry.
• Most of the technology press thinks that Chinese AI could challenge US AI for supremacy, and I agree that Chinese AI is just as good as its Western counterparts.\
• However, the analysis supporting this view is only skin deep as it does not bother to assess how practical the AI is to deploy or how much it costs.
• Furthermore, if Chinese chips for AI are just as good as their Western competitors, Chinese AI companies would select them without having to be “encouraged”.
• This is where almost all of the analysis that I have seen in the media and by consulting companies falls to pieces because they only look at ability of the AI and not its cost or efficiency.
• When it comes to home-made silicon, China is effectively stuck at 7nm, where it uses an old technique called multipatterning.
• This technique enables the manufacture of 7nm chips using older semiconductor manufacturing equipment, but has many more steps and lower yields.
• This means that the chips are more expensive to make than 7nm using EUV, and way more expensive and power hungry when compared to the current cutting edge at 3nm and beyond.
• This has had a profound impact on Huawei’s latest product line, where the Ascend 950, which powers Huawei’s 2026 SuperPod offering, needs 160 cabinets taking up 1000m2 in a data centre to produce 16 ExaFLOPs of compute.
• By contrast, Nvidia’s 2026 Vera Rubin offering needs just 5 cabinets to produce 18 ExaFLOPs of compute and takes up just 3% of the space in a data centre (see here)
• This means that Vera Rubin will produce the same amount of compute and do so much more efficiently, meaning that it will be much cheaper to deploy. \
• This is where Jensen’s famous line “the more you buy, the more you save” comes from and in general, I agree with it.
• This, combined with the fact that Nvidia’s software is much more mature (Huawei will certainly catch up here), is why Chinese companies want to use it, explaining why the state is stepping in to prevent them from doing so.
• While the Chinese state is able to govern what Chinese companies in China do, it is unable to force unaffiliated countries to choose Chinese technology, and it is here where I think the difference will be made.
• This is why I continue to think that China will really struggle to compete in overseas markets, as while it can deliver the compute, it can not do so economically.
• This is where Nvidia, AMD and everyone else will make up for what they have lost in China with revenues and market share growth in other countries.
• Hence, I continue to think that the Chinese are behind and that there is very little scope to catch up, given that it has no access to cutting-edge semiconductor manufacturing.
• This will be crucial to the ideological struggle that is being played out between China and the West, and at the moment, I continue to think it is the West that has the advantage.