Reports have emerged that the Chinese government is intervening in the distribution of artificial intelligence (AI) chips as the shortage of AI semiconductors in China intensifies due to U.S. export restrictions.

The Wall Street Journal (WSJ), citing sources close to the matter, reported that Chinese authorities have instructed Semiconductor Manufacturing International Corporation (SMIC) to prioritize AI chip supply to Huawei.

 This market intervention by the Chinese government underscores the severity of the AI chip shortage. DeepSeak, a promising Chinese AI startup, had to delay the release of its latest AI model earlier this year due to chip scarcity.

 Chinese firms are desperately seeking workarounds. Some have reportedly smuggled in high-performance Nvidia chips or accessed semiconductors through remote cloud computing services in other countries.

 Others have resorted to bundling thousands of older, less powerful semiconductors into massive systems for AI model training.

 This has led to enormous power consumption, prompting some local governments to offer electricity subsidies.

The WSJ reports that opinions are divided within the U.S. government regarding the effectiveness of the export control policy towards China.

 Some argue that the restrictions are successfully slowing China's AI progress, while others claim they're only spurring China's tech self-reliance and hurting U.S. companies like Nvidia.

 Nvidia Chief Executive Officer (CEO) Jensen Huang urged for export licenses to compete with Huawei, stating that China is only a few nanoseconds behind the U.S. in AI.

 China is pushing hard for technological independence. The government is spearheading efforts to phase out Nvidia chips from state-run data centers, with some reportedly removing already installed products.

However, the WSJ reports that engineers on the ground are grappling with inadequate software support for domestic chips like Huawei's, as well as system overheating and crash issues.

 Estimates of Huawei's actual production capacity vary widely between the U.S. government and market research firms. U.S. Commerce Secretary Gina Raimondo estimated Huawei's annual AI chip production at around 200,000 units during a June congressional hearing.

 In contrast, market research firm SemiAnalysis projects Huawei will produce 805,000 units this year and expects production to more than double next year.

 Despite quantitative progress, analysts note a persistent qualitative gap. A September Morgan Stanley report estimated that if SMIC were to manufacture Huawei's latest AI chip, the Ascend 910C, 95 out of every 100 silicon units produced could be defective.

Reports have emerged that the Chinese government is intervening in the distribution of art …

China Prioritizes AI Chip Allocation Amid Deepening Semiconductor Shortage