• China appears to be catching, matching or swerving around the US and European technology that it’s been forbidden to import in order to meet its AI and general IT industry ambitions
• But just as Chinese tech firms, such as Huawei, appear to take a step forward in any one key technology area, the US administration applies a fresh turn on the trade restriction ratchet to block or slow its progress
• Will this US whack-a-mole tactic work for the longer term? Here’s the state of play in three key areas of the Sino/US tech and trade struggle

The tech and trade tension between the US and China has been growing for years, leading more recently to the introduction of far-reaching trade sanctions and restrictions by the US that has, in turn, led to a surge in tech investment and development in China as Sino companies find themselves increasingly unable to source the technology hardware and software upon which they previously relied. And as Chinese companies find a new way to work around these restrictions, the US administration, in turn, introduces new or revamped rules in what looks like an ongoing game of tech trade whack a mole.

And, of course, that has also had a negative impact on the sales (and growth potential) of many US companies that have traditionally done a lot of business in China and are now trying to find ways in which they can continue to retain relevance and market share in China without breaking the rules – Apple is the latest company coming under scrutiny for the relationship it has developed with China’s Alibaba to add AI features to iPhones sold in the world’s second most populated country. 

In terms of individual companies, the main mole that the US has been (and still is) trying to whack is Huawei, which has been forced to develop its own smartphone operating system and processors and revamp its operations in recent years and, if its latest annual financial results are anything to go by, it has more than weathered the storm.

As part of its response to trade pressures, it seems, Huawei has invested a great deal of resources in trying to develop high-performance AI chips to counter the global dominance of US chip specialist Nvidia. 

Also in play here is the ‘buy China’ push by the Chinese government to massively boost the development and production of domestic silicon chips in the face of rising trade tensions and the high probability of further trade restrictions by the US.

To counter the Chinese effort, particularly in relation to very advanced AI chips, the US and its allies have impeded Chinese efforts to procure the equipment and expertise necessary to develop advanced EUV (extreme ultraviolet lithography)-enabled silicon used by Nvidia and largely responsible for its current dominance. 

Huawei decided to develop its own Ascend high-performance chips, not based on advanced lithography but on the older 7 nanometer process technology to which it would apply fancy footwork and innovation to try to catch up. The progress of this effort, which involves the development of its own chip fabrication plants, is currently at the centre of the China/US tech and tariff struggle. 

Earlier this month, Huawei said it had begun “mass shipping” the much-anticipated Ascend 910C AI training chips, which first made the headlines late last year. These are deemed fast and powerful enough to approach the sort of performance (and, crucially, the low power consumption) achieved by Nvidia and its H20 chips, when deployed as a multichip system.

Hot on the heels of the ‘C’ is the Ascend 910D, due later in May, with mass production planned for the last quarter of this year. Its theoretical peak performance is cited as 1.2 petaflops (PFLOPs) which, if true, would surpass Nvidia’s H100.

Until very recently Nvidia was still allowed to sell its H20 chips into China and to its allies, since the chips were deemed powerful enough for AI model training but not powerful enough to enable very advanced applications (such as those that might guide missiles in real time). The H20 has proven popular with Chinese customers, such as Alibaba, Bytedance and Tencent, for example. But the US authorities decided to do a spot of rule tightening and effectively banned the sale of H20 chips into China (an export licence is required), much to the chagrin of Nvidia, which announced in a filing with the Securities and Exchange Commission (SEC) that, as a result of that restriction, it will report charges of up to $5.5bn related to “H20 products for inventory, purchase commitments, and related reserves”.   

So with the Nvidia H20 mole whacked, the path was clear for Huawei to drum up a considerable amount of business in China if it could match Nvidia’s cost and performance levels and produce enough products to meet demand, especially as the demand for AI workloads has ramped up significantly in China since the launch of the R1 large language model (LLM) by China’s Deepseek. One report suggests the AI chip market in China is worth $50bn.  

In terms of capabilities, Huawei seems to be exceeding many expectations. 

According to Canada’s WCCF Tech site, the Ascend 910C is believed to be almost on par with Nvidia’s popular H100. And at the system level, things look even better for Huawei, with one analysis reportedly finding that Huawei’s CloudMatrix CM384 solution – which integrates 384 Ascend 910C chips across 16 racks – out-performed Nvidia’s equivalent solution. 

So in terms of overall processing costs, the Ascend 910C appears  to have put Huawei’s AI chip effort into the Nvidia performance ball park from where it may eventually produce a viable alternative AI environment for China and its technological allies. 

Providing, of course, that the mole whacking doesn’t prevent it advancing in allied areas… which brings us back to EUV.

Adopting more advanced process technologies for the chips is undoubtedly required if China (probably led by Huawei) is to continue the game of tech catch-up to enable its AI capabilities.

To that end, Nikkei Asia reports (subscription required) that China bought a record amount of chip-making equipment in 2024 to build up stockpiles of key tools in order to plump up its chip-making capabilities, buying nearly $20bn worth of kit from the Netherlands and Japan alone, along with purchases from Malaysia and Singapore.  

Chinese chip-makers are looking to expand in both chip manufacturing and chip packaging to meet surging local demand, say observers. Machines for silicon bonding, lithography and cleaning are being sought and the spending is a clear indicator of chip plant expansion. China’s share of the ‘mature’ chip market (chips fabricated using older, established methods) is projected to rise steeply in response to the Chinese government’s ‘buy China’ policy, up from 28% in 2025 to 39% by 2027. 

But while China’s ‘mature’ chip market looks set to boom, those pesky US government-inspired restrictions are set to continue mole-whacking when it comes to the crown jewel of advanced EUV technology, which is supplied exclusively by Dutch company ASML. That company is prevented from selling its most advanced chip-making tools – such as Extreme Ultraviolet (EUV) lithography machines – to Chinese companies due to ongoing export restrictions imposed by the Dutch government under pressure from the US. However, ASML is allowed to continue selling its older-generation deep ultraviolet (DUV) machines to China.

The third key area is software. Here Huawei and China are making slow but steady progress in breaking with the US, and a significant milestone was reached this week when Huawei announced its latest laptop would be running on Harmony, the operating system it developed to replace Microsoft’s Windows. HarmonyOS has been in development for five years now and already powers Huawei’s smartphones and tablets. That this is the first laptop to exclusively run HarmonyOS speaks to the difficulty of suddenly creating a brand new operating system – it can be a relatively slow process. Huawei says there are around 300 third-party apps available with 2,000 in development.  

But China’s greatest software breakthrough no doubt came with the sudden arrival of the aforementioned Deepseek R1 generative AI (GenAI) model, released last year, which illustrated how China’s IT sector appears to be thriving despite Washington’s efforts to slow it down. The whack-a-mole approach looks unlikely to succeed in the long run. 

– Ian Scales, Contributing Editor, TelecomTV