An?artificial intelligence (AI) chip is a specialized computing hardware designed specifically for the development and deployment of AI systems. These chips are built with integrated circuits optimized to efficiently handle tasks such as machine learning, deep learning, and large-scale data processing.

Traditional CPUs, while powerful, are not optimized for the highly complex and data-intensive demands of AI applications like deep learning, natural language processing, and computer vision. As a result, they often fall short in terms of power efficiency and processing speed. With AI models becoming more complex and datasets growing exponentially, the need for specialized hardware to accelerate inference and training has become increasingly urgent. This has driven the development and widespread adoption of AI chips – integrated circuits specifically engineered to meet the unique computational requirements of modern AI workloads.

Unlike general-purpose processors, AI chips are tailored for high-throughput parallel processing, enabling faster computation, lower energy consumption, and higher overall efficiency. They are essential for powering a wide range of applications, from autonomous vehicles and robotics to real-time language translation and predictive analytics. As AI continues to reshape industries worldwide, the demand for powerful and efficient AI inference solutions has surged – making the development of AI chips critical to the future of artificial intelligence.

Global semiconductor landscape: power shift dynamics

Today, most of the world’s semiconductor chips are designed in the United States but manufactured in Asia. The most advanced chips particularly those used in AI and high-performance computing are produced almost exclusively in Taiwan region and South Korea. TSMC (Taiwan Semiconductor Manufacturing Company) alone accounts for approximately 90?percent?of global output in this segment.

Although the United States remains a global leader in semiconductor design and R&D, driven by Intel, AMD, and Nvidia, its manufacturing share has sharply declined. Currently, the U.S. produces only about 10?percent?of the global chip supply. Moreover, 100?percent?of the most advanced chips those below the 7nm threshold are fabricated overseas, primarily by TSMC.

China, meanwhile, has established itself as a global leader in certain AI applications, such as facial recognition, smart surveillance, and language processing. However, its domestic semiconductor industry still lags in the ability to produce the advanced chips required to power these technologies. Consequently, Chinese companies remain heavily reliant on foreign suppliers for high-performance chips.

In October 2024, the Biden administration introduced sweeping export controls aimed at limiting China’s access to U.S.-origin semiconductors and chipmaking tools. Under these rules, Chinese entities are prohibited from purchasing advanced chips or related equipment from U.S. suppliers without a special license from the U.S. government. On January 15, 2025, BIS of U.S.?Department of Commerce announced new restrictions on 16/14 nm and higher?chips export controls. These measures are part of a broader U.S. strategy to?contain?China’s technological progress.

Notable sanctions, such as the 2019 blacklisting of Huawei and the ban on exporting extreme ultraviolet (EUV) lithography machines by Dutch firm ASML, have exposed critical vulnerabilities in China’s tech supply chain. These restrictions have blocked Chinese firms from acquiring the advanced tools needed to produce leading-edge semiconductors, particularly those used in AI and advanced computing.

The U.S. has further tightened controls by securing cooperation from key allies such as the Netherlands and Japan – home to some of the most advanced chip manufacturing technologies. Japan plays a crucial role in supplying specialized materials and precision equipment, while ASML in the Netherlands remains the world’s sole producer of EUV lithography systems essential for cutting-edge chip production.

The blacklisting of Huawei, once a global leader in 5G technology, disrupted its supply chain and severely restricted its ability to produce advanced smartphones and networking equipment. The EUV export ban further highlighted China’s reliance on a small number of foreign firms for foundational semiconductor equipment.

Building a self-sufficient ecosystem

In response, China has made semiconductor self-sufficiency a national priority. The government is investing heavily in a comprehensive domestic chip ecosystem, spanning everything from EDA (electronic design automation) software and production equipment to chip design, wafer fabrication, packaging, testing, and specialized materials.

Massive public and private investments have led to the construction of modern, highly automated semiconductor fabs across China. These new facilities feature improved design, management systems, and process standards resulting in greater efficiency, higher production yields, and lower costs. In many cases, they outperform earlier generations of fabs in both productivity and quality.

Rising competition among domestic chipmakers is also helping to drive down prices and raise quality standards. This competitive environment is pushing Chinese manufacturers to adopt advanced technologies, accelerate innovation, and scale operations. As a result, many are rapidly moving up the value chain in an effort to narrow the gap with global leaders like TSMC, Samsung, and Intel.

Indigenous innovation: Huawei and beyond

One notable advancement is Huawei’s release of its most powerful AI processors, the Ascend 910D and 910C. These chips are positioned as domestic alternatives to Nvidia’s high-performance AI GPUs. The 910D, in particular, signals a significant leap in China’s capacity to produce high-end AI hardware, potentially reshaping the national AI landscape. These developments are especially crucial as China faces intensifying U.S. export restrictions.

In response, the U.S. has updated its export control guidelines, tightening restrictions on entities using Huawei chips. Under the new rules, any organization worldwide using Huawei AI chips must now obtain a special license from the U.S. government. Non-compliance could result in severe penalties, including sanctions and restricted access to U.S. technologies. These efforts reflect Washington’s determination to limit China’s influence in advanced technology sectors such as AI.

The latest crackdown on Huawei marks an unprecedented level of government intervention against a Chinese private company. It exemplifies unilateral trade pressure and underscores the protectionist tendencies of U.S. trade policy.

China’s long-term vision

Despite these restrictions, the U.S. still appears to underestimate China’s long-term strategic vision.?Contrary to?halting progress, the U.S.?export controls are accelerating China’s?domestic innovation. China continues to develop high-efficiency, cost-effective alternatives —?many of which are freely available through open-source initiatives, such as the DeepSeek AI model. This dual emphasis on self-reliance and global openness not only strengthens China’s domestic capabilities but also contributes to the broader innovation ecosystem.

Looking ahead, China is expected to rapidly increase its share of global advanced chip production. As this transition occurs, the U.S. may begin to play the trick again by accusing?China of creating overcapacity, which has been?used in other industrial?sectors such as steel and solar. Simultaneously, Washington could criticize China for reducing imports of U.S. chips while pressuring Beijing to reopen its markets to American semiconductor firms.