China Targets Nvidia for a Breach of Anti-Monopoly Law
China launched an investigation into Nvidia on suspected violations of its anti-monopoly law but opted against elaborating on how the company did so in a statement from the State Administration for Market Regulation. The investigation threatens to impose considerable fines and disrupt Nvidia’s operations in China. Nvidia’s shares fell by 4% following the announcement. This is another play in an ongoing chip war between the two powers.
The Chinese government believes Nvidia’s purchase of the Israeli networking company Mellanox could violate the country’s anti-monopoly laws. Yet, again, there were no details regarding how this merger violated Chinese law. It is on account of these gaps in clarity that it becomes increasingly apparent that this could perhaps be seen as the latest move in the battle for technological supremacy.
Leading up to this incident, there has been a history of back-and-forth attempts between the two powers to reduce the other’s dominance in this space. The most recent was the US launching its third crackdown in three years on China’s semiconductor industry, which saw Washington curb exports to 140 companies. Beijing responded by banning the exports of critical minerals such as gallium, germanium, and antimony to the USA.
The Biden Administration has also introduced major export and investment restrictions aimed at limiting China’s access to US technology, mainly targeting advanced semiconductors useful for AI or the military.
Retaliation of this sort is nothing new, either. In October 2022, the White House National Security and Commerce Department officials began working on developing a new AI policy that introduced new rules. This includes relaxing certain laws, thus making it easier to build AI data centres abroad. However, these also guarded against their diversion to China, making their operations much more difficult.
Antitrust policies have seemingly been weaponised to diminish US growth in this space. In the USA, antitrust law is primarily concerned with protecting consumer welfare and promoting competition, principles rooted in a strong rule-of-law tradition. However, in China, the approach is motivated by geopolitics. In this way, antitrust policies have been utilised by Beijing to undermine US tech leadership in this escalating rivalry. It also means that Nvidia gets caught in the crosshairs of this conflict since China accounted for around 17% of Nvidia's revenue in the year to the end of January, sliding from 26% two years earlier.
China represents a significant portion of Nvidia’s revenue, particularly in the gaming and data sectors. The company’s advanced GPUs are critical for applications ranging from gaming consoles to AI-driven data processing. Hence, interruptions in business caused by investigations, such as the case at hand, could hurt the company, as China is a key consumer and manufacturing hub. The law, being exploited in this way, could lead to considerable penalties or operational restrictions, as well as a decrease in Nvidia’s revenue from China. However, if the issue were to be settled quickly, this could lead to more stability in investor confidence. Nvidia is still a booming AI business, nevertheless, but there are clear risks associated with its operations amidst the US/China tech war.
Nvidia’s challenges have served as a reminder for companies to evaluate the geopolitical risks associated with their portfolios. As tensions are likely to escalate further, US government policies in retaliation to China’s actions may hinder Nvidia’s freedom to operate in this region. Whilst the US Commerce Department believes that restrictions would slow China’s development of AI chips, China’s Commerce Ministry said they instead posed a serious threat to the stability of global supply chains.
Competition over advanced technology will always remain an area of friction between the USA and China. The key point of tension is the growing pressure on the USA to introduce limitations, which will always be met by China’s claims that these aim to undercut their economic growth and result in reprisals from Beijing. However, US restrictions are likely to decrease in the future as they can only be effective to a certain point. Once this point is reached, there is hope that the friction between these powers will finally diminish.
By Saanvi Shenoy
