USA vs. China – Turn of the screw

USA increases pressure on China.

• Restrictions are being placed on the export of advanced AI chips for the data centre to China and Russia which will slow China’s strategy to become a technological superpower demonstrating that while the world remains dependent on Silicon, China is at a big disadvantage.
• The US Government has increased its regulation of advanced AI silicon chips by requiring that chip makers obtain a license before selling certain parts of their portfolios to China or Russia.
• The default position on applications for export licenses of this type tends to be no and so for all intents and purposes, this represents a ban on exports.
• The companies most affected by this ban are Nvidia which has already called out a potential $400m hit to revenues and AMD which ships a competing product but has not quantified the potential hit.
• In reality, because Nvidia’s market share is so high in this space, the hit that AMD takes will be a tiny fraction and given that AMD has said nothing, it is probably immaterial.
• RFM and Alavan Independent have previously identified that outside of semiconductors, China is already a strong contender in the areas of AI, robotics and quantum computing.
• This is because China’s semiconductor disadvantage stems from arriving 30 years late to the semiconductor industry, which I don’t think it will ever be able to rectify.
• However, once processing moves from silicon to something else (as it surely must) then China will be competing head-to-head with the USA and on even terms.
• This is why I think the USA has made this move.
• China’s development of AI and many other areas of technology remain dependent on the use of silicon chips, where it has no homegrown technology of its own to speak of.
• Hence, the USA may be able to slow China’s development in the areas where it represents a real threat by limiting its access to cutting-edge semiconductors.
• This move is also significant as it represents the first really aggressive move by the USA against China since there was a change of administration early in 2021.
• Since that time, the administration has simply stuck with the restrictions put in place by the previous administration and has not made any big new moves of its own.
• Hence, I think that there will be more moves made in this area and I would not be surprised to see Intel and others hit with similar restrictions as they release more advanced products.
• I also do not expect that this will remain limited to AI but could easily spread into robotics and other areas where development remains dependent on silicon semiconductors.
• The USA states that it is requiring these licenses to guard against the use of advanced semiconductors for military applications, but I don’t think that this is the real reason.
• This is because AI is entirely based in software meaning that China will still be able to develop its military algorithms but will have to do so on older hardware.
• This is unlikely to affect the function of the AI too much, but it will make it slower and more expensive to develop as well as slower to execute.
• From the USA’s perspective, this is exactly the right move as its leverage in semiconductors will only last for as long as silicon is still in use and this strategy will help slow China down in the areas where it is a real threat.
• That being said, I suspect the silicon has a good 10 years or more to run and until then China’s technology strategy is going to remain handicapped.
• This combined with its self-inflicted handicapping of its technology sector with draconian regulation and Covid zero means that at the moment, China is losing the race.
• China has a lot of work to do.