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US Crackdown Targets Alibaba and Tencent

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The restrictions are particularly damaging for Alibaba, whose cloud business is its major growth engine at a time when its e-commerce operations have been struggling as China’s economy has slowed.

Its cloud business is one of the biggest public cloud service providers in Asia, competing successfully against Amazon Web Services, Google Cloud and Microsoft’s Azure. In an increasingly AI-driven environment, the business has now been handicapped.

It was the unexpected sophistication of the chips used in the latest Huawei smartphone, released earlier this year, that shocked the US into the most recent round of restrictions.Credit: Bloomberg

Moreover, Alibaba and other Chinese companies, including Tencent, will now have to sink a lot of cash into trying to help develop their own advanced chips for their AI models.

China and its big tech companies, with state backing, have been ploughing billions of dollars into efforts to develop domestic semiconductor design and manufacturing capabilities in response to the ever-tightening US sanctions.

It was the unexpected sophistication of the chips used in the latest Huawei smartphone, released earlier this year, that shocked the US into the most recent round of restrictions.

The Huawei device showed that China’s chip-making capabilities were far more advanced than previously recognised, albeit Huawei’s chips being a couple of generations behind the leading-edge chips that have been developed in the US.

What’s striking is how quickly and significantly the last round of US curbs on sales of the advanced chips has impacted China’s big tech companies.

For Alibaba and Tencent, which were relying on AI to be their growth engines, the tighter export controls have created massive challenges, affecting their customers’ ability to deploy the transformative capabilities of AI to improve their own productivity and competitiveness.

For China more broadly, any limitation on its ability to develop the large language AI models, which can analyse vast amounts of data to identify patterns and generate predictions and decisions, means it will increasingly fall behind the US in the technology that will shape the economic future – and military capabilities – for at least the next several decades.

It hasn’t helped that its crackdown on the big tech companies over the past several years has deliberately reduced their financial capacities and independence.

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Alibaba, whose founder, Jack Ma, may have precipitated that crackdown with some disparaging and provocative comments in 2020 about China’s financial system, regulation and state-owned banks, had a market capitalisation of more than $US800 billion before he made those comments. Today, it is valued at only about $US200 billion.

Developing large language AI models is horrendously expensive by itself, let alone having to try to design and manufacture the advanced chips that power them.

The decision to abort the float of Alibaba’s cloud business appears to have been triggered by a recognition that the group would need whole-of-company financial support to try to remain competitive.

It isn’t helping China’s companies or its economy that – despite increasingly intense efforts to encourage foreign investment – what used to be a flood of external capital and associated intellectual capital into the nation has almost completely dried up.

For the first time since the data started to be recorded in 1998, China recorded a deficit in foreign direct investment in the September quarter, with outflows out-stripping inflows by $US11.8 billion.

Tencent and other Chinese companies will now be forced to sink a lot of cash into trying to help develop their own advanced chips for their AI models.

Tencent and other Chinese companies will now be forced to sink a lot of cash into trying to help develop their own advanced chips for their AI models.Credit: Bloomberg

While some of that might relate to interest rate differentials – rising interest rates in the US and other advanced economies while China’s remain relatively low – the larger explanation is probably the “de-risking” of the relationship with China by the US and other Western economies, and the fears generated by China’s use of revised espionage laws in order to police access to what it regards as sensitive economic and commercial data.

Access to Western technology, capital and markets were key elements of China’s remarkable economic growth story of the past four decades.

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Now access to them is being increasingly curtailed amid the contest between the US, its allies and China for economic and geopolitical supremacy and – along with a shift in economic strategy away from market and private sector-driven growth towards a more centralised, state-directed economic model – so is its growth rate.

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(The following story may or may not have been edited by NEUSCORP.COM and was generated automatically from a Syndicated Feed. NEUSCORP.COM also bears no responsibility or liability for the content.)

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