- Nvidia’s top-tier AI and HPC GPUs, such as the H100 and H200, are being smuggled into China from other countries.
- Nvidia will sell 900,000 HGX H20 processors to China in 2024 alone, with plans to supply over a million B20 processors by 2025.
- Huawei is set to spend $7.3 billion on foreign wafer fabrication equipment in 2024, sourcing tools from the U.S., Japan, and Europe.
- Experts recommend revisiting the Foreign Direct Product Rule to encompass equipment containing any level of U.S. technology rather than adhering to a 25% threshold, potentially tightening these export controls.
Despite extensive U.S. efforts to restrict China’s access to high-performance AI hardware, China has managed to assemble enough AI processors to build one of the world’s most powerful AI training clusters, according to a report by SemiAnalysis. Huawei, one of the most heavily sanctioned companies in the IT sector, has managed to sidestep these sanctions, not only through the use of proxy companies but also by domestically producing its Ascend 910-series processors.
AI Competing Zone
It’s well known that even Nvidia’s top-tier AI and HPC GPUs, such as the H100 and H200, are being smuggled into China from other countries, including India, Malaysia, and Singapore. Chinese companies looking to build servers or data racks powered by Nvidia’s high-end Hopper GPUs are managing to acquire these components, though often at high prices. For those opting to avoid illegal smuggling, Nvidia also offers its DGX H20 processors, specifically modified and approved for export to China.
Semi Analysis estimates that Nvidia will sell 900,000 HGX H20 processors to China in 2024 alone, with plans to supply over a million B20 processors by 2025. The extent of additional H100 and H200 GPUs entering China through re-exports is uncertain, but analysts expect a significant number will reach Chinese companies. While many Chinese companies would prefer more access to Nvidia’s advanced AI hardware, cloud-based solutions remain available to them as well.
Huawei appears less reliant on Nvidia’s offerings, focusing instead on its own Ascend 900-series AI hardware. Originally manufactured by TSMC, Huawei’s Ascend 910 processor continues production through intermediaries, with SMIC also producing the Ascend 910B on 7nm technology and the 910C on 6nm technology. SMIC’s continued production on advanced nodes—despite U.S. restrictions on advanced fab equipment sales to China—is reportedly possible due to a strategic facility setup. SMIC operates an unrestricted legacy fab interconnected with a restricted advanced fab via a wafer bridge, allowing wafer sharing across facilities and enabling advanced chip production while still legally importing sophisticated tools.
AI hardware Collaboration
In partnership with SMIC and CXMT, Huawei is advancing a state-backed initiative to build a comprehensive domestic fabrication network for AI hardware. This network will produce essential components, from advanced logic chips and HBM memory to specialized interconnects and packaging solutions.
Huawei is set to spend $7.3 billion on foreign wafer fabrication equipment in 2024, sourcing tools from the U.S., Japan, and Europe. When combined with purchases by SMIC and CXMT, China would rank just behind Taiwan’s TSMC in global equipment spending.
Challenging US Sanctions
This ambitious investment highlights the gaps in U.S. export controls, which hinge on entity lists that Huawei and SMIC have managed to circumvent. Experts recommend revisiting the Foreign Direct Product Rule to encompass equipment containing any level of U.S. technology rather than adhering to a 25% threshold, potentially tightening these export controls.
However, U.S. fab tool suppliers face a dilemma, as stricter regulations impact their own revenues, leading many to lobby for more lenient rules.
Analysts caution that relaxing restrictions risks undermining U.S. technological leadership and national security, as these workarounds accelerate China’s path to AI and semiconductor independence.
