China’s Chip Ambitions: Huawei vs. Alibaba

• China’s push for self-sufficiency in AI chips sees a surprising competitor emerge. Alongside Huawei’s state-backed efforts, Alibaba’s chip unit is making significant strides.

In a surprising turn of events, a new contender is challenging Huawei’s position as China’s leading chip developer. This competition emerges amidst the nation’s broader push for technological self-sufficiency in the semiconductor sector. While Huawei, with state backing, has been a central figure in this effort, private companies like Alibaba are also making rapid advancements. This development introduces a new and unexpected dimension to the ongoing global chip war.

Huawei has long been a key player in the government’s strategy to achieve 70% self-sufficiency in artificial intelligence chips by 2027 in certain regions. Its efforts have recently gained momentum, partly due to direct support from Beijing. Authorities have reportedly urged companies to reduce their purchases of certain U.S. products, creating opportunities for Huawei to expand its market share. This coincides with a recent anti-monopoly investigation launched by Chinese market watchdogs against U.S. chip giant Nvidia.

Huawei’s Strategic Push

Huawei’s flagship Ascend chips are now being adopted by major state-owned enterprises, including Industrial and Commercial Bank of China and State Grid Corporation of China. In addition to a recent announcement of three new chips over the next three years, Huawei has unveiled plans for its next “supernode.” This computer cluster, featuring thousands of processors, is designed to be more powerful than Nvidia’s comparable systems. These strategic moves highlight Huawei’s determination to challenge the dominance of its American rivals.

Despite its strong position, Huawei faces a potent challenger within its own borders. A recent state broadcaster CCTV report highlighted a large data center built by China Unicom, which is powered entirely by domestically manufactured semiconductors. It is a remarkable achievement, given that U.S. sanctions and export controls have limited China’s access to advanced chipmaking technology. What is even more surprising is that Alibaba’s chip subsidiary, T-Head, supplied a significant 72% of the 23,000 processors used in the project.

Alibaba’s Growing Influence

Securing such a high-profile government contract is a major victory for Alibaba’s private-sector firm, which until recently was a target of Beijing’s tech crackdown. T-Head, founded only seven years ago, was not even mentioned in Alibaba’s latest annual report. Its chips were previously viewed as being for internal use, primarily serving its parent company’s cloud computing division, a direct competitor to Huawei. The rivalry between the two technology giants now extends beyond cloud services and into the critical semiconductor space.

News of Alibaba’s semiconductor achievements, including the recent CCTV report, has had a positive effect on its shares, pushing them up by more than a third in the past month. Similarly, another major cloud computing rival, Baidu, recently secured a significant chip order from China Mobile, a larger telecommunications firm, valued at over 1 billion yuan ($140.6 million). Smaller companies like Biren Technology are also making strides as domestic semiconductor suppliers for state-backed initiatives.

Broader Implications

The competition between Huawei and Alibaba represents a fascinating dynamic within China’s tech ecosystem. While Huawei operates with clear state backing and a focus on national security and technological self-reliance, Alibaba’s success demonstrates the potential for private enterprise to contribute significantly to the same goals. This internal competition could lead to faster innovation and a more resilient domestic supply chain, ultimately strengthening China’s position in the global chip market.

Fun Fact

A fun fact about the semiconductor industry is that the term “chip” is an abbreviation for a microchip, which is a common name for an integrated circuit (IC). The very first integrated circuit was invented by Jack Kilby in 1958 while he was working at Texas Instruments. His invention was a germanium chip that integrated an oscillator on a single piece of semiconductor material. He was later awarded the Nobel Prize in Physics in 2000 for his work.