In recent days, China has been pressing Washington to ease export controls on high-bandwidth memory (HBM) chips, making it a priority in trade talks ahead of a possible Trump–Xi summit. Now, chipmakers Nvidia and AMD have agreed to give the US government 15% of their Chinese revenues in order to obtain export licences for China — an unprecedented move for an American company.

Hawks in Washington warned that lifting the curbs would hand Chinese tech firms a major boost, allowing millions of AI chips to roll off production lines each year and siphon scarce microchips from US supply chains. Yet the impact of export controls has often been overstated — and their costs to the West understated.

Since 2022, US policy has aimed to choke off China’s access to its most advanced semiconductor technologies. Export controls have restricted China’s access to cutting-edge manufacturing equipment and limited the deployment of AI infrastructure abroad. The fact that Beijing has lobbied so hard to lift these measures is itself evidence that they have hurt.

Hailed by the Biden administration as the most effective brake on China’s ability to mass-produce advanced AI chips, export controls were seen by many as a decisive constraint on its technological ambitions. Three years on, however, China’s advances in AI with DeepSeek, robotics, and its own semiconductor industry tell a different story.

While export controls have caused short-term disruption, they have not prevented China from acquiring advanced chips through other means. Smuggling networks have moved tens of millions of dollars’ worth of Nvidia chips into China via transshipment hubs such as Singapore and Malaysia. Chinese firms have repurposed high-end gaming GPUs for AI training, and companies such as Tencent have optimised software to extract maximum performance from less capable hardware.

More importantly, these restrictions have given Beijing a clear strategic incentive to accelerate its own semiconductor independence. Although not as quickly as Xi would like, Huawei, SMIC, and YMTC have pushed ahead with domestic innovation, reportedly achieving 7-nanometre process chips and high-density memory production despite the embargo.

The rationale behind export controls rests on the assumption that China’s economic development can be contained. The reality is that Beijing will eventually find workarounds or develop its own advanced semiconductors capable of replacing Nvidia’s. What is unclear is whether it serves America’s interests for that moment to come sooner rather than later.

Chinese firms still fall short of Nvidia’s quality, keeping them reliant on its microchips and squeezing revenues. But far from keeping China technologically stagnant, export controls may actually be bringing closer the day that the country can produce advanced chips capable of competing internationally. Given that Nvidia’s share of the Chinese market has fallen from 95% to 54%, it is clear that Chinese firms are starting to make inroads.

This is the trade-off policymakers rarely acknowledge. While easing export controls might provide China with short-term gains, prolonging its dependence on Western chips could better serve Western strategic interests in the long run. Forcing China to develop a fully indigenous supply chain would remove that leverage.

The only way for the US to outmanoeuvre China is to double down on its technological development instead of trying to stop Beijing from advancing its own capabilities. To accomplish this, Washington needs to think less in terms of complete denial and more carefully in managing what China can access. For example, maintaining robust restrictions on access to cutting-edge manufacturing equipment for advanced microchips, while allowing US companies to continue selling in China and reinvesting their profits into innovation, combined with strategic use of regulatory levers to protect critical choke points.

In this light, easing certain export controls — far from a capitulation — can be viewed as a calculated bet that maintaining China’s dependence on Western chips is safer than pushing it toward full self-reliance.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

miquelvilam

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

miquelvilam

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