The US imposed export controls on Chinese entities, prompting China to retaliate against US semiconductor companies. In response, China has launched investigations into Nvidia and restricted the export of critical materials, highlighting the escalating tech war between the two nations. These actions could lead to significant fines and hinder foreign businesses' operations in China.
On December 2, 2024, the US Department of Commerce expanded its export control list to include 136 entities in China, prompting a swift response from China's Ministry of Commerce, which vowed to take necessary measures. Additionally, four major Chinese industry associations released a statement highlighting concerns about "US chip insecurity," reflecting governmental support for their stance.
In the lead-up to this escalation, China cautioned Intel over potential backdoor issues. In late November, when Chinese Commerce Department officials met with Nvidia's Executive Vice President Jay Puri in Beijing, the Chinese authorities initiated an investigation into Nvidia, in what appeared to be a response to US actions. This investigation has made Nvidia a primary target of China's retaliatory measures against US policies.
The recent scrutiny faced by leading companies mirrors the challenges that Micron encountered in 2023. These repeated retaliatory actions against three major American semiconductor firms over the past two years have raised concerns about future implications.
When Nvidia acquired Mellanox in 2020, China was the last to approve the deal, showcasing its use of antitrust laws to influence mergers involving foreign semiconductor companies. Similar cases include Intel's acquisition of Tower Semiconductor, Broadcom's purchase of VMware, and MaxLinear's acquisition of Silicon Motion Technology, all needing Chinese approval. Without this consent, such mergers could fail, strengthening China's position in trade talks.
Recently, China announced restrictions on the export of germanium and gallium against the US. Coupled with statements from the four major industry associations, these actions signal that China is increasingly willing to unleash robust countermeasures.
This investigation poses significant legal risks for Nvidia and indicates an unprecedented level of China's capacity for retaliation in the ongoing global tech war.
Under Article 58 of China's Antitrust Law, if a company breaches commitments in acquisitions and restricts competition, it could be fined up to 10% of its prior year's sales. For Nvidia, which earned US$10.4 billion in China in 2023, this could result in fines between US$100 million and US$1 billion. In cases considered "particularly severe," fines could be increased by two to five times, potentially reaching US$2 billion to US$5 billion.
Analysts point out that China's leverage has diminished considerably over time. For instance, Qualcomm's CNY60 billion (US$975 million) fine in 2015 resulted only in a financial penalty. Considering Nvidia's strong technological and market position, along with US AI chip export restrictions to China, it is unclear if China can secure any significant advantage now.
China currently depends on overseas channels for computing power due to insufficient AI capabilities and limited local manufacturing capacities. This has placed the country in a passive position, constrained by several factors. Until China can develop adequate domestic computing power to replace Nvidia, it will continue to fall behind the US.
By targeting companies like Micron, Intel, and Nvidia, China may claim victories through heavy fines, but the tangible benefits remain questionable. For foreign businesses, such actions heighten the perceived risks of entering the Chinese market.
