In the battle of market dominance and supply chain war of advanced technology, US and China, who have been at loggerheads with each other, are now going to escalate the situation to the next level. The US government is planning to restrict Chinese companies from accessing US cloud service providers. And if the new rule comes into play, cloud-service providers such as Microsoft and Amazon will require government approval for offering their cloud services in the Chinese market — a move that will affect big tech, but prove beneficial for India.

The proposed restriction on China is considered an effort to address a significant loophole. National-security analysts had raised concerns on Chinese AI companies circumventing export control regulations by leveraging cloud services. These cloud services enable customers to access high-performance computing capabilities without the need to purchase advanced equipment including chips, which was originally restricted via US sanctions. 

US-China Tussle

The ongoing tussle between the US and China has been brewing for a while now. In October last year, the US unveiled a set of export controls that banned Chinese companies from buying advanced chips and chip-making equipment without licence. The rule also restricts people in the US, including American citizens or green card holders, to offer any form of support for the development or production of chips within specific manufacturing facilities in China. 

Nvidia recently expressed concerns and said that if the US imposes any form of new restriction on the export of AI chips to China, there would be a permanent loss of opportunities for the US industry. Interestingly, China is a top market for Nvidia. Last year, the revenue from China (including Hong Kong) accounted for 22% of the company’s revenue. 

As retaliation and to brew the problem further, China announced that they will control the export of certain metals such as gallium and germanium from next month. These two metals are used to manufacture advanced chips, EV batteries and other high-tech components. The move has also raised concerns of probable further sanctions where China might restrict other rare earth elements, which are an integral component for semiconductors 

With the new kind of restrictions that the US is planning to impose on China, the move might boomerang back. By losing one of their biggest markets, the US will have to then increasingly push and capitalise other available markets, a move that may prove beneficial for emerging markets such as India. 

Big Techs Caught in Cross-Fires

It can also be considered that these new restrictions are an ongoing ploy by the US government to dampen the speeding technological advancements in China. However, the biggest losers of the ongoing geopolitical conflict are big techs who have to scramble to abide by new rules and mostly find new markets. 

Though the top two biggest cloud providers in the world — Amazon Web Services and Microsoft Azure — have presence in China, they do not have dominance in the market. Local cloud players such as Alibaba Cloud, Huawei Cloud, Tencent Cloud and Baidu Cloud account for 80% of total in China, with Alibaba having the strongest market share of 40%. The new US restriction will impact the US tech players who have been steadily trying to make a dominance in the Chinese market.  

China’s Loss, India’s Win

With geopolitical issues surfacing on the sidetrack, US and India’s partnership is emerging stronger. The US is the third largest FDI contributor to India and has invested over $60 billion between 2000 and 2023. In addition, the US is India’s largest trading partner and the largest export destination. The country is the 9th largest trading partner of the US. With such promising ties, India is set to benefit the most. 

Shifting base or plans to end partnerships in existing markets can lead to a number of financial and logistical problems. The new sanction will push investors to seek markets similar to China, and this is where India will benefit. A few months ago, Foxconn technology announced their plans to invest $700 million for a new plant in India. Foxconn has also partnered with Vedanta Resources to build semiconductor plants. 

Advancements in building iPhone plants in India have been happening for a while now. To invite investors, countries will offer incentives in the form of tax benefits, lower costs, etc. India has also been offering tax incentives to boost local production. Three of Apple’s global suppliers, Foxconn, Pegatron and Wistron, are operating domestically in India. Incentives of over $550 million were offered to Apple and other device manufacturers to come to India. 

While the tussle between US and China will continue, with big techs in the middle, other markets will thrive in the uncertain future.