Regular readers know that I’ve projected China winning the AI market (not necessarily the race). The argument is simple: Chinese AI is a lot cheaper and it’s open source, which means you can’t be cut off or arbitrarily have your price raised or the AI crippled with restrictions. (Well, not easily.)

Chinese open models are cheaper and come with less risk. Most of the world will use them. The frontier models are, sometimes, better, but the open models are about 6 months behind at most, it’s not enough.

The rule for competing with Chinese companies is simple: you must be more advanced and stay more advanced. Anything they can make, they can make cheaper than you can, with a few exceptions, mostly outside of manufacturing.

But there’s another issue. Chips.

If you’ve needed to replace your computer or phone you know that chip prices have gone WAY up. Even the low and middle tier stuff is way more expensive than two years ago as AI companies hover up chips for data centers. (Many of which won’t be built, and most chips are actually in warehouses.)

China’s been working on chips, hard, ever since Trump’s sanctions in his first term. They’re going to scale and since they’re good at doing things cheap as they scale they will take over the low and middle end CPU, memory, GPU and other chip markets, while US/Korean/Taiwanese companies sell to American AI companies.

When the AI bubble bursts, and it will, not because AI isn’t a real tech, but because this is a bubble the companies that ignored consumers to make record profits will find that China has taken over the markets they used to own.

Then China, because it actually does most of the low and middle end manufacturing, in country, will beat them on advanced chips, because the tech lead goes where the manufacturing floor is.

 

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This is… bad, but frankly, I need to replace my computer in the next couple years so I’m not crying. If Western companies don’t care to sell me their products at reasonable prices, yeah, I’ll buy Chinese.

The loss of high end markets has already started:

Huawei AI NPU Servers to Land in Korea in Q4, Throwing Down the Gauntlet to NVIDIA Huawei will launch its artificial intelligence (AI) accelerator chips in the Korean market for the first time in the fourth quarter of this year. Following the completion of a distribution agreement covering domestic sales, the company has been observed preparing its sales operations, including technical training and pricing policy development. Amid exploding demand for AI infrastructure, Huawei is expected to knock on the door of the Korean market by positioning itself as an alternative that resolves dependence on NVIDIA and offers price competitiveness.

A little math. Each 910 chip has 70% of the compute of the NVidia alternative, but draws 40% of the power.

There’s one other thing to bear in mind: the massive construction of data centers in the West is driving up energy prices and that drives up costs for every manufacturing company in the West, so even outside of chips/AI Western industry will be less price competitive.

If it wasn’t for European and Japanese leaders, I’d think that America has the stupidest leaders in the world.

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