China to persist with AI development in 2024 despite rigid US chip restrictions, UBS analysts say

China is expected to ‘work within those constraints’ while making progress via AI accelerators and more economical use of computing resources
The country’s ability to overcome setbacks caused by US exports controls must not be underestimated, according to UBS’ Nicolas Gaudois

US-China tech war

Che Panin Beijing

Published: 10:30pm, 9 Jan 2024

Why you can trust SCMP

China will press ahead this year with development of large language models (LLMs) – the technology used to train ChatGPT and similar applications – and generative artificial intelligence (AI) systems, despite restrictions imposed by the United States on the mainland’s access to advanced semiconductors, according to analysts from Swiss investment bank UBS.

China is expected to “work within those constraints and try to make progress” by tapping into domestic AI accelerator programmes and being more economical in using computing resources, said Nicolas Gaudois, head of Asia-Pacific technology research at UBS, during a webinar hosted by the bank on Tuesday.

Gaudois said US export controls have blocked China’s access to Nvidia chips used for AI projects, but indicated that the mainland’s ability to overcome such setbacks must not be underestimated.

The views expressed by UBS analysts reflect how China’s semiconductor industry weathered last year’s escalation of Washington’s tech sanctions, which restricted exports of advanced chip-making equipment and cutting-edge semiconductors for AI projects.

27:21

Biden’s China tech policy goal: a 10 year handicap

The mainland’s tech sector appeared to have overcome the chokehold of US export controls last year, when Huawei Technologies made a surprise return to the 5G smartphone market with new handsets powered by a “breakthrough” advanced made-in-China processor.

It showed the lengths taken by the US-blacklisted company to build up its operations, following years of struggles on account of trade sanctions.

Apart from that breakthrough, UBS analysts asserted that China’s semiconductor sector has developed well in certain unsanctioned segments, showing strong market growth over the past few years.

“Restrictions from the US are very limited on mature nodes,” said Randy Abrams, head of Taiwan Research at UBS, in the same webinar on Tuesday. He pointed out that sales of these mature-node chips have not been restricted.

“We have seen China make more effort to invest in those areas,” Abrams said. “We will see steady market pickup in mature applications, such as camera image sensors, micro-controllers, analogue chips and discrete semiconductor devices for EVs.”

China’s semiconductor industry weathers tough year amid tighter US sanctions

“In semiconductor equipment, local suppliers have built up their market share from very low single-digits into the mid- to high-single-digits,” he said. “Their gains come from supplying China semiconductor manufacturers, as they’ve added mature node capacity.”

Abrams said domestic chip-making equipment suppliers saw their market share increase to about 20 per cent on the back of demand from Chinese chip fabrication facilities. “So if we leave out the very advanced nodes, there are actually a lot of [investment] opportunities,” he said.

Global demand for chips, he said, is expected to start picking up, as soon as inventory pressures ease and procurement at semiconductor foundries improves.

A slew of sanctions imposed by the US since 2019 has also forced companies across China’s vast tech supply chain to work closely together.

Internet search giant Baidu, which runs Ernie Bot and the Ernie LLM, ordered US$61 million worth of Huawei’s 910B Ascend AI chips – which the Chinese firm developed as an alternative to Nvidia’s A100 processor – for 200 servers, according to a report in November by Reuters, which cited sources.

Post