Dragoman Digest

US chip and software controls propel Chinese self-reliance push

Temporary restrictions galvanise domestic alternatives and erode Western firms’ market position

The US has reversed two major China technology export restrictions within weeks of imposing them. In May, the Trump administration restricted exports of critical electronic design automation (EDA) software from companies like Cadence and Synopsys. US companies dominate global EDA sales and control almost 90 percent of the Chinese market. The ban was rescinded after only a month. Days later, the US reversed an earlier ban on NVIDIA’s H20 AI chips, which had been developed in response to previous export control measures. Commerce Secretary Howard Lutnick openly stated that Washington wanted Chinese developers dependent on US technology. During the EDA ban, Shanghai-based UniVista – an EDA software company – offered free trials to domestic users, while Beijing redirected its US$47.5 billion chip fund toward software development. When H20 sales stopped, Chinese firms accelerated adoption of Huawei’s Ascend chips despite their higher costs and technical limitations.

A series of export bans since Huawei was first cut off from US semiconductor technology in 2019 has led to the rapid development of China’s semiconductor ecosystem. Over 100 Chinese EDA startups have emerged from only a dozen five years ago, many founded by former employees of leading US EDA companies. Chinese companies have collectively developed alternative EDA offerings up to the 7-nanometre chip level, remaining at least two to three generations behind Western tools that support sub-3-nanometre production. Concurrently, industry giants like Huawei are building translation software to help AI models based on NVIDIA’s world-leading CUDA programming platform run on its Ascend chips. Chinese developers overwhelmingly prefer NVIDIA’s mature CUDA ecosystem to Huawei’s alternative CANN framework, which remains nascent.

The rollback reflects the limitations of US semiconductor export controls, which have become a political football in wider US-China trade negotiations. After US tariff escalations in April, China’s retaliatory rare earth restrictions led to Washington seeking concessions. The H20 reversal followed shortly after, with Treasury Secretary Scott Bessent suggesting discussions move “onto other issues”. The on-again, off-again export controls have failed on both their intended fronts: they have not prevented advanced tech reaching China, and they have given Chinese companies sufficient incentive to seek domestic alternatives. Each cycle of controls followed by reversal has served to accelerate the Chinese self-reliance drive that Washington ostensibly seeks to prevent.

Tech giants price Western smelters out of electricity markets

AI infrastructure boom leaves strategic metals producers without affordable power

Western governments are pouring billions into reshoring metals processing to break China’s stranglehold on strategic materials. But competition for electricity from tech companies in supply constrained grids risks making these efforts economically unviable. Tech giants routinely sign contracts above US$100 per megawatt hour to secure power for AI data centres, while aluminium smelters need electricity at US$40 per megawatt hour or less to remain profitable. The superior economic heft and margins of US hyperscalers Microsoft, Amazon, and Google mean they secure not just existing capacity but also priority access to renewable projects. Tech companies now outbid traditional industrial users by two to three times for the same megawatt. Consequently, real-term electricity prices are projected to rise steadily across US and European markets. In America’s largest power market, grid operator PJM will pay power producers US$16.1 billion to meet energy needs from June 2026 to May 2027, a 10 percent increase from the previous year. These dynamics leave energy-intensive manufacturers struggling for whatever power remains, at prices they cannot afford.

This comes at a particularly inopportune time for Western smelters struggling to compete against Chinese supply. The US imposed 50 percent tariffs on aluminium imports in June to protect domestic production, but the fact remains that no new aluminium smelter has been built in the US since 1980. Power represents a third of smelters’ operating costs. Companies like Century Aluminum and Emirates Global Aluminium will only proceed with planned facilities if they can secure long-term electricity contracts at viable rates. Similar dynamics plague Europe and Australia, where existing smelters face closure despite government support. Nyrstar’s US planned expansion into germanium and gallium processing – materials critical for semiconductors and defence applications – requires state funding just to break even. The reshoring may fail not just from insufficient subsidies but from market-based electricity systems that direct power to customers paying the highest price.

Chinese EV makers recalibrate European strategy 

Chinese automakers are now facing indirect trade barriers in addition to formal tariffs

In October 2024 the EU imposed up to 45 percent tariffs on Chinese electric vehicles (EVs). In response, Chinese EV manufacturers are adopting a number of strategies to maintain market presence. Despite their reputation for offering cost-competitive models, brands like BYD have been wary of offering discounts which may lead European competitors to lobby for further tariff protection. Chinese companies have also ramped up shipments of plug-in hybrids, which are not covered by tariffs. Local manufacturing is another pillar in this strategy. BYD is leading the way with facilities in Hungary and Turkey. SAIC and other Chinese companies are also considering investments.

European governments are still taking steps to limit China’s growing influence in the EV sector. The UK’s newly announced £650 million subsidy scheme will exclude certain Chinese-made vehicles because of their higher embedded emissions context – broadly mirroring a scheme design previously adopted by France. Under the plan, buyers can receive up to £3,750 in subsidies for vehicles under £37,000, with the full subsidy being contingent on lower carbon production. BYD’s Executive Vice President Stella Li labelled the scheme “stupid,” characterising it as a backdoor tariff. Meanwhile, EU regulators have launched a preliminary probe into BYD’s €4bn Hungarian factory, concerned that the factory will focus on assembly with limited benefits to local supply chains. So despite Chinese brands having recovered most of the market share lost since October 2024, they now clearly face a much more complex regulatory landscape.

China’s tech IPO revival masks speculative foundations

Regulatory shifts risk wave of unsuccessful moonshots amid collapsed venture funding

New venture capital and private equity funds in China dropped 42 percent year-on-year in 2024 to a 10-year low, prompting regulators to resurrect previously dormant pathways for unprofitable companies. In July, the Shanghai Stock Exchange launched a sci-tech growth tier admitting 32 loss-making firms under the “fifth listing standard”. Companies seeking to list under the standard will only require a four billion yuan (US$560 million) estimated market capitalisation and progress toward commercialisation. No revenue threshold was specified. Many of the companies accepted for listing are loss-making. The move to inject fresh capital comes as US funding has largely dissipated after Washington imposed restrictions on outbound investment in critical technology. At the same time, China is going all out to achieve self-sufficiency in semiconductors and AI – both sectors where profitability can take decades.

These relaxed funding pathways have triggered a rush for capital at competitive valuations. Chinese exchanges received a record 40 IPO applications on June 30 alone. GPU developers Moore Threads and MetaX filed for listings despite R&D expenses consuming 600 percent and 280 percent of revenues, respectively. Four embodied AI startups raised US$70-120 million each within three days of Unitree Robotics’ viral dancing robot video, capitalising on renewed investor interest in frontier technologies.

Current inflows consist largely of mainland retail investors with short-term horizons rather than institutional backers. Cornerstone investors have provided 42 percent of Hong Kong IPO proceeds so far in 2025. Two-thirds of these funds have come from overseas investors who predominantly back already-profitable companies. Multiple exchanges are now competing for tech listings. Beijing alone attracted 113 IPO applications in the first half of 2025 by offering relaxed requirements for “little giants” in strategic sectors. The proliferation of IPOs sits uneasily with President Xi Jinping’s warning to officials in July around “reckless” AI and EV investments that leave problems for future generations. Without patient capital to sustain years of losses, Beijing’s reopened IPO window may simply redistribute speculation rather than funding genuine breakthroughs.

Indonesia considers shortening mining quotas to contain collapse in nickel price

Rapid nickel expansion secured dominance but triggered oversupply and collapsing prices

The Indonesian government is considering a significant shift in its mining policy by reducing mining quotas’ validity period from three years to one. The proposal, discussed in late July, is intended to give authorities greater control over nickel and coal output, allowing more responsive adjustments to global price volatility. This shift, however, has raised concerns among miners. The Indonesian Nickel Miners Association (APNI) has warned that shorter quotas could create bureaucratic bottlenecks and undermine investment certainty. At this stage, Deputy Mining Minister Yuliot Tanjung has said the plan is still under review.

This regulatory shift comes as part of a broader effort by Jakarta to stabilise nickel prices, which have plummeted due to oversupply. Indonesia’s rapid success in expanding its nickel industry was initially driven by former President Joko Widodo’s 2020 export ban on raw ore which incentivised over US$30 billion in mostly Chinese downstream investment in smelting capacity. Chinese companies in Indonesia also made breakthroughs in using High-Pressure Acid Leaching to help convert laterite ore into battery grade nickel. Indonesia has since secured two-thirds of global nickel supply, up from just six percent a decade ago.

With 2.2 million tonnes of nickel produced last year and another 1.5 million tonnes in the pipeline, the country’s dominant position has helped push global competitors out of the market. For example, oversupply from Indonesia has decimated Australia’s nickel sector, leading to the suspension of BHP’s Nickel West smelting operations and forcing many mines across Western Australia into care and maintenance. The glut has pushed prices to fall to five-year lows and is now threatening the viability of Indonesian smelters and slashing government revenue. Facilities like Huadi Nickel Alloy and Wanxiang Nickel Indonesia have ceased operations, while Tsingshan’s huge facility at Weda Bay is operating below capacity. After securing market dominance, Indonesia now appears to have entered a phase of consolidation where price stability is a much higher priority.