Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Huawei Is Winning China's AI Chip Race Against Nvidia
Transcript
- Lucas: So Nvidia's CEO Jensen Huang says the company has 'largely conceded' China's AI chip market to Huawei. That is a massive strategic admission, and it reshapes how we think about both the AI hardware landscape and us china tech decoupling. Luna: That headline jumped out at me this morning too. But it's not just Nvidia waving a white flag — it's the culmination of years of export controls and Chinese industrial policy. Lucas: Exactly. Let's anchor this in numbers. Nvidia has been selling its high-end AI chips, like the H100 and its successors, into China under tight restrictions since October 2022. But the Biden administration kept tightening the screws — first banning chips above certain performance thresholds, then even curbing lower-end chips that could be linked together. Luna: Right, and that created a vacuum that Huawei was more than ready to fill. Their Ascend 910B chip is now the go-to alternative for Chinese cloud giants like Alibaba and Baidu. Lucas: And look at the stock moves. Over the past five days, Alibaba is down about 4.7 percent, Baidu down over 5 percent. The broader China ETFs — FXI down 2.7 percent, KWEB down 3.7 percent. That's not just Nvidia's concession; it's the market pricing in a more fragmented, less efficient AI supply chain in China. Luna: But Huawei's chip isn't a direct replacement. The Ascend 910B is reportedly about 60 to 70 percent as powerful as Nvidia's top-tier offerings. So Chinese firms are having to retrain their models on less capable hardware. Lucas: That's the cost of decoupling. And it's not just performance. Huawei can't access leading-edge fabrication either — it's stuck on 7-nanometer-class nodes from SMIC, while Nvidia uses TSMC's 4-nanometer and 3-nanometer processes. So the gap could widen, not narrow. Luna: So why would Jensen Huang say they've 'largely conceded'? I mean, Nvidia still has a massive business in China for data center chips that aren't restricted, right? Lucas: They do, but the most profitable, highest-margin products — the ones that power training large language models — are exactly the ones cut off. And the Chinese market was about 20 percent of Nvidia's data center revenue before the restrictions. That's billions in annual sales that are now at risk. Luna: And on the other side, Huawei's rise is a boon for its own ecosystem. The company is reportedly building out a full-stack AI platform, from chips to frameworks to cloud services. That's a direct competitor to Nvidia's CUDA moat. Lucas: It's eerily similar to what happened in smartphones. Huawei was building its own Kirin chips while also using Qualcomm. Then sanctions hit, and Huawei pivoted to an entirely in-house approach. Now they're doing the same in AI. Luna: So for investors, the question is: does this create an opportunity in Chinese tech stocks that have sold off, or is the structural headwind too strong? Lucas: I think it's a mixed bag. On one hand, companies like Alibaba and Baidu now have a domestic chip supplier, which reduces geopolitical risk. On the other hand, if they're forced to use inferior hardware, their AI models may lag behind US counterparts, hurting competitiveness long-term. Luna: And then there's the trade balance angle. The US trade deficit in goods and services widened to over 60 billion dollars in March, up from about 57.8 billion. That's partly because China is importing less American tech, thanks to these restrictions. Lucas: Yeah, and the yuan is at 6.81 per dollar, a slight weakening from 6.79. That makes Chinese exports cheaper, but it also reflects capital outflows and a cautious mood. The trade-weighted dollar index is at 119.3, so the dollar is strong, which adds pressure on emerging markets. Luna: Let's bring it back to Nvidia's earnings, which just came out. SoftBank shares surged 20 percent on the news, signaling that AI momentum is still global. But Nvidia's own stock was down slightly after the Huawei concession was highlighted. Lucas: The market is starting to price in a two-tier AI world: one tier with access to Nvidia's latest hardware, and another tier limited to Huawei's alternative. That's a big deal for both the technology and the geopolitics of AI. Luna: And it's not just China. Other countries may be forced to choose sides. If the US restricts chip exports further, allies could also get caught in the crossfire. Lucas: We're already seeing that with the Netherlands and Japan. The export control regime is broadening. But Huawei's resilience also sends a message: you can't just sanction your way to victory if the target has enough scale and state backing. Luna: So what should a listener watching this space keep an eye on? Lucas: Watch the performance benchmarks. If Huawei's next-gen Ascend chip closes the gap to Nvidia's current-gen, the concession story becomes permanent. If not, it's just a temporary detour. Luna: Also watch how US policy evolves. There's talk of a new round of restrictions on chipmaking equipment. That could hit SMIC and further limit Huawei's fabrication options. Lucas: Right. And on the market side, Pinduoduo is up 2.7 percent over five days, bucking the trend. That shows that consumer-focused tech with a domestic angle can still find buyers, even as AI names get hit. Luna: So the decoupling story isn't uniform. It's hitting the high-end AI chip market hardest, but other sectors of China tech are evolving differently. Lucas: Exactly. And that's what makes this such a critical moment. The next twelve months will tell us whether China's AI ambitions can prosper without Nvidia, or whether the gap becomes a chasm. Luna: For now, it's a fascinating case study in how industrial policy and export controls reshape global supply chains. Lucas: And we'll be watching it closely. That's it for this episode of China Economy with Fexingo. I'm Lucas. Luna: And I'm Luna. See you next time.