China Investigates NVIDIA for Allegedly Breaking Monopoly Law

The Chinese government is investigating U.S. chipmaker NVIDIA for allegedly violating its anti-monopoly law by acquiring interconnect provider Mellanox.

On Monday, the State Administration for Market Regulation made a statement via China Central Television announcing the investigation, but it does not discuss the specifics of NVIDIA’s suspected violations.

The authority approved NVIDIA’s $6.9 billion acquisition of Mellanox, an Israeli company, in 2020 with certain conditions. These aimed to prevent the tech giant from restricting competition in the markets of GPU acceleration, private internetworking devices, and high-speed Ethernet adapters.

SEE: EU Investigates NVIDIA Deal With Run:ai

Mellanox was required to provide information about new products to Chinese rivals within 90 days of making them available to NVIDIA and give them a chance to ensure their own products are compatible, according to Bloomberg. Conditions also included prohibitions on product bundling, discrimination against customers who buy products separately, and unreasonable trading terms.

A NVIDIA spokesperson told TechRepublic: “NVIDIA wins on merit, as reflected in our benchmark results and value to customers, and customers can choose whatever solution is best for them.

“We work hard to provide the best products we can in every region and honor our commitments everywhere we do business. We are happy to answer any questions regulators may have about our business.”

Latest shot fired in the U.S.-China chip war

The investigation represents just the latest move in the years-long tussle for dominance in the lucrative semiconductor market between the U.S. and China. NVIDIA is the leading provider of artificial intelligence and gaming chips, announcing record revenues of $30 billion (£24.7 billion) in the second quarter of 2024.

The U.S. is keen to maintain its current sovereignty by blocking China from access to NVIDIA’s state-of-the-art hardware, which is crucial for running advanced AI models. In addition to financial motivations, the U.S. has also raised concerns about China developing AI for military purposes.

In 2022, the U.S. applied its first set of chip-related export controls on the sale of semiconductors to Beijing and separately banned NVIDIA from selling its most advanced chips to Chinese companies. In response, NVIDIA developed the China-specific A800 and H100 chips that were compliant with the new controls, enabling it to maintain customers in the country.

That same year, the U.S. passed the CHIPS Act, which provided needed semiconductor research investments and manufacturing incentives and reinforced America’s economy, national security, and supply. It also launched a blueprint for an AI Bill of Rights to help regulate AI domestically. Intel, TSMC, Texas Instruments, and Samsung — the world’s largest memory chipmaker — have all announced plans to build fabs in the U.S.

SEE: Global Chip Shortage: Everything You Need to Know

Then, in August 2023, China’s Ministry of Commerce enforced export controls on gallium and germanium-related items “to safeguard national security and interests.” These rare metals are essential in chip production, and China produces 98% and 54% of the world’s supply of gallium and germanium, respectively. According to data from the Financial Times, the cost of the minerals has almost doubled in the year since.

In October last year, the U.S. imposed a second set of export restrictions on semiconductors, closing some of the loopholes NVIDIA exploited with A800 and H100. Since then, the chips giant has been preparing to release new iterations that bypass the updated rules.

Nevertheless, the restrictions have greatly impacted NVIDIA’s earnings in China. The country accounted for just 16.9% of its revenue in 2023, 9.5% less than in 2021, according to its latest financial results.

Just last week, the Biden administration announced its third set of restrictions on semiconductor exports to China, expanding the list of banned technologies. Beijing responded with a statement, declaring it a “typical act of economic coercion and non-market practice.”

“The US says one thing and does another, constantly generalizing the concept of national security, abusing export control measures, and implementing unilateral bullying,” the Ministry of Commerce spokesperson said. “China firmly opposes this.”

In response China swiftly banned the sale of germanium and gallium to the U.S., closing loopholes from its 2023 export controls, and added a number of U.S. defense tech startups that cannot do business in China.

Quests for AI sovereignty surging worldwide

It’s not just the U.S. and China that want to reduce their reliance on other countries regarding AI chips. Both Japan and the Netherlands have struck deals with the White House to restrict the sale of chipmaking kits to China.

The U.K. blocked most license applications for companies seeking to export semiconductor technology to China in 2023. That same year, the U.K. government announced that it would devote £100 million ($126 million) to fostering AI hardware development and shoring up possible computer chip shortages. Amazon Web Services also announced plans to invest £8 billion in data centres in the country over the next five years.

SEE: UK Government Announces £32m for AI Projects After Scrapping Funding for Supercomputers

The European Union offered €43 billion ($46 billion) in subsidies to boost its semiconductor sector with its European Chips Act, which was adopted in July 2023. The bloc also has the lofty goal of producing 20% of the world’s semiconductors by 2030.

Global antitrust investigations into NVIDIA

NVIDIA is having trouble mediating the U.S.-China chip wars. In addition to the Beijing investigation, the U.S. Justice Department is investigating whether the company violated its antitrust laws by punishing customers who also buy from its competitors and making it difficult to switch suppliers, according to Bloomberg.

SEE: AI Surge Could Trigger Global Chip Shortage by 2026

Benoît Cœuré, the president of the French competition authority, has also said that NVIDIA may face antitrust charges in the country “one day” at a July press conference, Bloomberg has reported.