China is engaged in a strategic propaganda campaign, exaggerating its technological self-sufficiency in areas like AI chips. The goal is to convince U.S. policymakers that export controls are futile. This narrative aims to pressure the U.S. into relaxing restrictions, which would then allow China to acquire the very technology it claims not to need.
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Reports of China building a working EUV lithography machine are misleading. The effort appears to be an assembly of smuggled components from ASML's existing supply chain, not a story of domestic innovation. This frames the primary challenge as one of export control evasion rather than a rapid technological leap by China.
Evaluating export controls by asking if China is still advancing is the wrong metric. The true test is the counterfactual: where would China be *without* the restrictions? The controls act as a significant handicap in a competitive race, not a complete stop, and it's highly likely China would be ahead of the U.S. in AI without them.
The decision to allow NVIDIA to sell powerful AI chips to China has a counterintuitive goal. The administration believes that by supplying China, it can "take the air out" of the country's own efforts to build a self-sufficient AI chip ecosystem, thereby hindering domestic firms like Huawei.
Allowing H200 chip sales gives China significant AI compute capability. This short-term revenue boost for NVIDIA won't alter China's long-term policy of reducing reliance on foreign tech, effectively helping a competitor in a strategic race.
Unable to compete globally on inference-as-a-service due to US chip sanctions, China has pivoted to releasing top-tier open-source models. This serves as a powerful soft power play, appealing to other nations and building a technological sphere of influence independent of the US.
A major, clandestine production run by TSMC for Huawei shell companies supplied China with millions of advanced AI chips. This single violation artificially propped up China's AI compute capacity, effectively delaying the full impact of U.S. export controls by two years and obscuring the true state of China's domestic capabilities.
Instead of military action, China could destabilize the US tech economy by releasing high-quality, open-source AI models and chips for free. This would destroy the profitability and trillion-dollar valuations of American AI companies.
Contrary to their intent, U.S. export controls on AI chips have backfired. Instead of crippling China's AI development, the restrictions provided the necessary incentive for China to aggressively invest in and accelerate its own semiconductor industry, potentially eroding the U.S.'s long-term competitive advantage.
The argument that U.S. export controls accelerate China's domestic tech efforts is a fiction. China's "indigenization pedal has been on the floor" since 2014, long before recent controls were implemented. It is a core national priority, meaning U.S. policy has little marginal effect on an already maxed-out effort.
U.S. export controls on advanced semiconductors, intended to slow China, have instead galvanized its domestic industry. The restrictions accelerated China's existing push for self-sufficiency, forcing local companies to innovate with less advanced chips and develop their own GPU and manufacturing capabilities, diminishing the policy's long-term effectiveness.
