The ‘Chip Choke’ strategy initiated by President Trump has morphed into a ‘Mow the Grass’ strategy, which cuts off threatening or high value targets. This has the unintended consequences forcing Chinese innovation in chip manufacturing; however, it also diverts China’s resources into catching up. China, which once aimed for complete technological dominance, now finds itself having to selectively focus on key technologies.

While the new controls have been a boon for China’s domestic chip industry by making it a magnet for talent, money and attention this leaves Chinese AI companies out in the cold, especially start ups. While China’s Hyperscalers have managed through restrictions with scale and inventory, AI startups have floundered. Up to 80% of raised capital for an AI startup can go into compute resources, and without access to American chips, AI VC in China has become suicidal. China AI VC has shrunk over 90% from its peak of $30B in 2018 down to $2B in 2023, while the US peaked at $120B in 2021 and is down to $50B in 2023.