Doing their own work well | the weekly recap

Even as US-China trade dynamics command the global spotlight, Chinese leaders are focused on “doing [their] own work well.”

• That goes double when it comes to their push toward tech self-sufficiency and AI development.

After weeks of dissecting the trade war drama, it’s nice to be able to turn back to analyzing China’s domestic regulatory environment – aka “the Trivium wheelhouse.”

Three specific developments this week highlight Beijing’s determination to press ahead with its overarching technological ambitions – even as external distractions mount:

• Policymakers have banned foreign AI chips in state-funded data centers.
• Local governments are increasingly subsidizing the electricity bills of AI data centers.
• And officials are rolling out a new “AI Plus Manufacturing” plan, under the broader AI Plus initiative.

Let’s take these one by one.

First, on November 5, Reuters reported that authorities have ordered state-funded data centers to stop using foreign AI chips in new projects or those still early in construction:

• “The Chinese government has issued guidance requiring new data center projects that have received any state funds to only use domestically-made artificial intelligence chips.”
• “In recent weeks, Chinese regulatory authorities have ordered such data centers that are less than 30% complete to remove all installed foreign chips, or cancel plans to purchase them, while projects in a more advanced stage will be decided on a case-by-case basis.”

The vast majority of data centers take at least some state funds, so under these requirements, only a small subsection of private companies that build their own data centers would be exempted from the rules.

• That said, the fact that this guidance is not a publicly-released regulation means Beijing still has the flexibility to allow in some foreign chips later – if this turns out to be an ill-conceived self-sufficiency gun-jump that runs up against market realities.

This all matters because Washington is debating whether to allow Nvidia to sell a downgraded version of its Blackwell chips to China.

• But that debate is moot if Beijing won’t approve their import or use.
• And for now, every indication is that China is all in on AI chip self-sufficiency.

Second, on November 4, the FT reported that China’s local governments are subsidizing electricity costs for AI data centers:

• “China has increased subsidies that cut energy bills by up to half for some of the country’s largest data centers.”
• “The new subsidies come after several tech groups complained to regulators about the increased costs of using domestic semiconductors from companies such as Huawei and Cambricon, most of which are less energy-efficient than Nvidia’s.”

The key point here is that Beijing is trying to capitalize on one of its few AI infrastructure advantages over the US – cheap and abundant power – to offset the cost of switching to domestic chips.

• The US has the most advanced AI accelerators, but currently lacks the power to drive the expected data processing boom.
• China is in the opposite situation – it has plenty of power but weaker chips.

To get more concrete, Huawei’s AI server system – CloudMatrix 384 – is less energy-efficient than Nvidia’s NVL72 system.

• Since it can’t beat the US on per-chip performance, Huawei’s strategy is to raise aggregate performance by linking up more chips.
• But bigger systems consume more power – which is fine if the government covers the bill.

That’s why China’s plentiful supply of cheap energy is a boon for its AI ambitions.

• It gives Huawei, and potentially other companies, room to compensate for lower per-chip performance by scaling horizontally.
• And it also means China’s AI infrastructure buildout will go exponential once its chip supply chain issues are resolved.

This is a moment that Chinese policymakers are trying to force: By tightening access to even the most advanced foreign chips in data centers, as discussed above, Beijing is tacitly promising a protected market to domestic chip innovators that come close to – or meet – foreign chip performance.

The key point: If China’s chipmaking ramp happens before the US resolves its power bottlenecks, Beijing will slingshot ahead in the AI race.

And third, on November 3, Li Lecheng, Minister of Industry and Information Technology (MIIT), revealed that MIIT will soon issue an “AI Plus Manufacturing” plan, under the aegis of the broader AI Plus program.

The plan won’t be short on ambition, with Li indicating it will focus on:

• Rolling out AI upgrades in key industries, and promoting them across the entire manufacturing sector
• Expanding use cases like intelligent assisted design, virtual simulation, and early defect detection
• Promoting the replacement of last-generation consumer devices with products like AI-enabled mobile phones and computers
• Accelerating R&D for next-gen intelligent devices such as humanoid robots and brain-computer interfaces

Why it matters: This AI Plus Manufacturing plan will offer one of the clearest roadmaps yet for how Beijing intends to diffuse AI across the economy – which is a cornerstone of its broader innovation and industrial-upgrading goals.

Putting it all together: Just when you might have expected Xi Jinping and co. to sit back and breathe a sigh of relief after sealing a trade deal with the US, officials instead pushed forward on three major AI policy fronts in a single week.

• It’s clear that, when it comes to AI, Chinese policymakers are going full-throttle as they simultaneously seek to 1) force self-sufficiency in chips, 2) underpin the data center buildout with cheap power, and 3) rapidly diffuse AI across the manufacturing sector.

The bottom line: China’s leaders will stay laser-focused on the innovation agenda – undeterred by any distractions from the US, or other Western governments, on the trade front.

Andrew Polk, Co-founder, Trivium China

What you missed

Econ and finance

China’s high-tech exports are firing on all cylinders despite tariff barriers.

• Per customs bureau data, across Q3, the aggregate export value of new energy vehicles (NEVs), lithium-ion batteries, and PV cells – China’s so-called “three new” exports – surged 33.4% y/y.
• In volume terms, shipments of these products shot up 40% y/y – the second-highest rate on record. NEV shipments jumped 74% y/y in Q3, while battery and PV exports each grew 22%.

Corporates

Auto giant Geely is delivering on its promise to massively scale up global production without building new manufacturing capacity.

• On Monday, the company announced it had acquired a 26.4% minority stake in French automaker Renault’s Brazilian subsidiary.
• The deal will grant Geely access to Renault’s factory in Paraná – along with its established sales and aftersales networks – allowing the Chinese automaker to quickly localize production of its EX5 electric SUV without significant greenfield investments.

Tech

On Tuesday, China’s civil aviation authority (CAAC) released draft packaging standards for human biological materials transported by unmanned aerial vehicles.

• As China’s “low-altitude economy” grows, medical institutions and labs will increasingly be sending biological materials, such as blood or urine samples, to each other via drone-based logistics services.
• The new packaging standards are, to put it bluntly, designed to prevent toxic waste dropping on people’s heads.

Politics

The Party is tightening scrutiny over officials’ foreign ties. At its latest session, which concluded on November 1, the political advisory body (CPPCC) removed several officials from leadership roles in its special committees.

• Most notably, Yi Gang, former central bank (PBoC) governor, was removed as deputy director of the Economic Affairs Committee.
• According to Sing Tao Headline, the removal of Yi and others was a result of the Party’s campaign to root out “naked officials” – those with spouses or children residing overseas, who are seen as posing national security risks.

Agriculture and rural affairs

The recent US-China trade truce is set to improve the outlook for a much longer list of agricultural commodities beyond just soybeans. According to the White House’s November 1 Fact Sheet, Beijing committed to:

• Rolling back its March 4 counter-tariffs on US ag products – in exchange for Washington lifting fentanyl-related tariffs.
• Extending its “market-based tariff exclusion process,” allowing for case-by-case tariff carve-outs on a long list of ag products.
• Resuming purchases of American sorghum and hardwood logs – in addition to soybeans.

Foreign affairs

On November 1, EU trade chief Maroš Šefčovič tweeted that Beijing’s agreement with Washington to suspend implementation of its October 9 export controls on rare earth elements (REEs) and battery tech will also apply to the EU.

• According to Šefčovič, the Ministry of Commerce confirmed with him directly that the suspension of the October export controls applies to the EU.
• Beijing also looks set to start issuing long-term general licenses, as detailed in the White House’s November 1 fact sheet, for exports of REEs and potentially other critical minerals to all countries.

On Tuesday, MofCom signaled that talks with the Netherlands over the Nexperia case have broken down.

• A few weeks ago, the Dutch government seized control of Nexperia, a China-owned auto chip supplier; Beijing retaliated with export bans on Nexperia chips.
• Talks seemed to be moving in a positive direction after MofCom relaxed the export ban last weekend, but have now taken a turn for the worse.
• Per MofCom’s latest statement: “The Dutch government has disregarded China’s reasonable demands repeatedly raised during consultations…and has instead escalated the global supply chain crisis.”

US-China

Beijing has dropped tariffs on US imports – as per the agreement Xi Jinping and US President Donald Trump reached last week.

• On Wednesday, the State Council Tariff Commission confirmed it will remove counter-tariffs on US agricultural products imposed on March 4 and reduce tariffs Beijing imposed on US goods on April 4, from 34% to 10% for one year.
• Both of the changes go into effect at 1:01 PM on November 10, exactly one minute after midnight in the US, when corresponding American actions – including a 10% reduction on fentanyl-related tariffs and a 24% reduction in Liberation Day tariffs – become effective.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.