Some experts in China argue that the trade restrictions imposed by Washington are pushing Taiwanese enterprises to enhance their self-sufficiency. Nvidia, a prominent semiconductor manufacturer based in the United States, has gained attention for consistently unveiling updated chips tailored for the Chinese market, thereby assisting foreign chip producers facing trade limitations.
In the aftermath of the enforcement of export control measures, Nvidia experienced a significant upsurge in revenue and market value in 2023. During a trip to China in January 2024, Jensen Huang, the CEO of Nvidia, hailed 2023 as a groundbreaking year for the company. Nvidia holds a dominant position, capturing approximately 90 percent of China’s chip sector, especially in the realm of artificial intelligence (AI) chips.
TrendForce, a technology research firm headquartered in Taiwan, projects a potential decline in Nvidia’s revenue share from China to below 50 percent by 2030. In its annual assessment, Nvidia pinpointed Huawei Technologies, the Chinese tech behemoth, as its primary rival.
Despite the substantial reliance of Chinese chip manufacturers on Nvidia’s cutting-edge chips, there is a diminishing interest among them towards Nvidia. Authorities in the Chinese markets are expressing apprehensions about procuring additional inventory from Nvidia due to notable price reductions leading to inefficiencies.
An increasing number of Chinese chipmakers are of the opinion that maintaining a prolonged partnership with Nvidia is unsustainable, prompting them to explore local alternatives. In their quest for enduring stability, foreign chip manufacturers appear willing to confront short-term hurdles, with Huawei from China emerging as a favored contender.
Huawei’s dedication to fostering Chinese innovations has consistently bolstered confidence in local technological prowess. The remarkable success of Huawei’s 7nm IoT-powered device has instilled renewed faith in China’s chip market despite the sanctions imposed by the US. In a bid to diminish reliance on foreign advanced graphic processing units crucial for AI training, gaming, and electric vehicles, Huawei is prioritizing displacing Nvidia’s dominance in the domestic market.
Despite being in an advanced development stage, Huawei’s Ascend 910B chip has already gained traction in the market and is anticipated to deliver 80 percent efficiency compared to Nvidia’s H100 and H800 chips. It is emerging as a preferred alternative for Chinese chipmakers over Nvidia’s downgraded offerings.
Subsequent to the revision of export controls in 2023, there was a surge in demand for the Ascend 910B chip, with Chinese chipmakers willing to pay a premium. Baidu, a key player in the AI sector, promptly expressed interest in Huawei’s chips. Even before the proposed regulations by the US Department of Commerce were enforced and the specifications of the Ascend 910B chip were disclosed, Huawei and Baidu collaborated to enhance Baidu’s large-scale AI modeling infrastructure.
Through the utilization of Huawei’s HiAI platform and Baidu Brain, an amalgamation of Baidu’s AI assets and services, an open ecosystem is being established as part of this collaboration. The partnership will leverage Baidu’s PaddlePaddle deep learning framework and Huawei’s neural network processing unit to empower AI developers.
While continuing to place significant orders with Nvidia, Baidu was among the early adopters of Huawei’s Ascend 910B chips. Various other Chinese AI firms and telecom operators have commenced testing Huawei’s Ascend 910B-based intelligent cluster modeling.
Reportedly, Huawei is developing an exclusive software platform for enterprises to conduct AI modeling, an area where Chinese AI giants have traditionally relied on US platforms. The efficacy of Huawei’s proprietary software platform, its availability, and its potential to enable Huawei to supplant US platform providers remain to be seen.
By subsidizing chipmakers capable of procuring local content, the Chinese government is diminishing its dependence on foreign suppliers. Consequently, collaborations among domestic chipmakers, designers, and suppliers are becoming more prevalent. The Semiconductor Manufacturing International Corporation, a major player in China’s foundry business, is spearheading this movement by giving precedence to local suppliers. Empiran Technology, equipped with its proprietary electronic design automation software supporting advanced node chips, witnessed a significant year-on-year growth of about 50 percent in 2023 compared to 2022.
In December 2023, rumors circulated that the Shanghai Micro Electronics Equipment Group had autonomously manufactured the SSA/800-10W lithography scanner capable of producing 28nm equipment. Zhejiang Wazam New Materials Co. Ltd., a leading supplier of film used to insulate semiconductor chips, is in the final stages of completing its tests, enabling Chinese chipmakers to domestically source film. The impact of these developments on scaling up equipment production remains to be observed.
Experts assert that the failure of the chip ban contributed to Nvidia’s strong foothold in China’s chip market. However, it is noteworthy that Chinese enterprises had already commenced forging their paths by fostering collaborations and localizing supply chains prior to the implementation of the chip ban.
Domestic giants anticipated challenges and proactively cultivated domestic synergies, which are now evident in the midst of the escalating US-China technological conflict. While transitioning away from Nvidia’s cutting-edge chips may pose short-term challenges for the Chinese market, the resurgence of Huawei and its successful business strategies, coupled with growing synergies with domestic AI entities, exemplify that Chinese chipmakers are willing to endure immediate setbacks for long-term stability.
In 2024, chip manufacturers in China perceive the domestic supply chain as more reliable compared to two years ago. The critical question revolves around whether China’s localization of the semiconductor supply chain will prove to be dependable and effective in the long run, aiding its catch-up efforts against the US. Another pertinent issue pertains to whether the domestic reliance on outdated equipment technology will keep China lagging behind the US and Japan in advanced manufacturing technology, subjects of Washington’s export sanctions.
Megha Shrivastava, a Doctoral Candidate at the Department of Geopolitics and International Relations, Manipal Academy of Higher Education, India.
