China Flashes the Wrong Kind of “Go” Sign At Nvidia

After receiving a surprisingly vigorous response to a brief note I posted on LinkedIn, I thought I’d attempt a similarly concise offering here. For those of you who haven’t seen what I wrote on LinkedIn, it’s here.

Don’t worry, by the way. I’ll be back to writing expansive magnum opuses soon enough. I just figured that I should test the ancient proposition about variety being the spice of life. So let’s see whether this piquant experiment in brevity appeals to your jaded palates.

Nvidia’s China Prospects Dim

Through no fault of its own, Nvidia confronts diminishing returns in China. I’ve harped on this point before, so I won’t belabor it further today. I will add only that China, via the state-run People’s Daily, has given unambiguous notice that Nvidia’s H20 AI chip — duly neutered, pursuant to U.S. export controls, for the delectation of Chinese customers — is unlikely to find a receptive market.

Officially and ostensibly, as reported by Reuters, China’s concerns are trust and security. Given the current global context of virulent trade wars and geopolitical tensions, those concerns are plausible.

Nevertheless, there might be more to the story. If I may, I’d like to request that you indulge my perhaps overactive imagination as I sketch another possibility.

As I see it, China’s government likely perceives steadily escalating U.S. export controls as a regressive bait-and-switch ruse that will leave China with decreasingly capable simulacra of Nvidia GPUs. Meanwhile, U.S. and other Western countries will get the brawny genuine articles, leaving China’s AI processing efforts in the computational dust.

For China, the ultimate goal is for its domestic GPU and AI-accelerator suppliers to step up their game and displace Nvidia in the Chinese market. If those companies do extremely well, they might even eat into some of Nvidia’s international market share. The first priority, though, is for China to reduce, then eliminate, its dependence on Nvidia in particular and U.S. suppliers in general.

That effort, which involves Huawei (but not just Huawei) as a purveyor of GPUs, is ongoing, making tangible progress. Despite those steady advances, Chinese companies that purchase GPUs still perceive considerable value in the Nvidia brand, even if that brand is fronting hobbled GPUs that no self-respecting U.S. company would buy. Consequently, Chinese authorities are perhaps reluctant to tell the country's AI practitioners that they can’t buy Nvidia’s H20s, even if those chips are underpowered and put China at a technological disadvantage.

What China can do, however, is to issue an edict that declares Nvidia silicon to be a security risk to China and Chinese organizations. In this scenario, Chinese authorities can effectively accuse Nvidia of building backdoors into the silicon to aid U.S. intelligence at the expense of China’s national security and the integrity of Chinese commerce. If that happens, China will bar, on security grounds, Nvidia's H20 chip from the Chinese market.

Would such allegations be true? For the purposes of the Chinese authorities, what's demonstrably true may or may not matter. What matters is that the narrative provides authoritative cover for a concerted effort to redirect Chinese GPU buyers toward domestic suppliers.

Only a Theory

But what I’ve posited is only a theory. I don’t know whether it's anything other than my own speculative musings. It's not truth unless it can be conclusively corroborated, and I have nothing but supposition for you today.

Truth is a precious commodity these days, but excuses, pretexts, and rationales are thick on the ground, like a biblical plague of locusts. Even so, available evidence suggests that China is moving gradually away from dependence on Nvidia and U.S. AI technology. What I’ve described would be a defensible justification for such a move.

I’ve reluctantly made this post public. Why the reluctance? Every time I post publicly on anything to do with technology and China, I receive overly friendly and insistently personal inbound messages from people I don’t know — people who don’t seem to be who they say they are. I’ve stopped responding to these unsolicited blandishments, so if you’re planning such inveigling correspondence, don’t bother. To quote a snatch of lyrics from the song below, “Listen, I ain’t a pet, or a token hipster in your monopoly set.”

It’s Friday — on the cusp of a long weekend in my part of the world — so here’s the song to which I alluded. There were many candidates for this week’s honor, but I settled on the rollicking sounds of Graham Parker intelligently venting spleen at the ineptitude of his former record label. I’ll feature something more obscure next Friday.

Postscript: This was supposed to be a succinct post, and by the standards of this venue, it qualifies as such. Still, at approximately 850 words, this entry is unlikely to be mistaken for an aphorism or an epigram. Well, at least I tried.