Dmitrii Khasanov is an angel investor, digital marketing expert and founder of Arrow Stars.
The United States has been tightening its policy of exporting semiconductors to China in recent years. The aim of this strategy is to curb the technological and military advancements of the country. These decisions have influenced global markets, supply chains and innovation trajectories around the world.
For investors eyeing IT startups, this pivot raises critical questions: Are Chinese tech ventures still viable? Or does the risk outweigh the potential reward? Let’s figure it out.
Chip Restrictions
The policy of restrictions began during the administration of President Biden. In 2025, President Trump tightened these sanctions, including blacklisting Chinese entities.
The immediate effects were disruptive. Chinese firms faced shortages of high-end chips, spiking prices for critical components. U.S. companies like Nvidia and AMD reported $5.5 billion and $1.5 billion in projected losses, respectively, due to restricted China sales. Semiconductor stocks, including Marvell and Supermicro, fell as investors faced geopolitical volatility.
However, the long-term consequence has been a surge in Chinese innovation. Beijing’s $47.5 billion semiconductor fund and state-backed initiatives are accelerating domestic R&D, with firms like Huawei and SMIC investing in domestic chip design and homegrown semiconductor fabrication. As Nvidia CEO Jensen Huang said, “China is right behind us”.
The Reactions To Export Controls
Faced with export barriers, two paths have emerged. Domestically, Chinese firms are achieving milestones previously thought unattainable without U.S. technology. For example, Huawei’s Ascend 910C, an alternative to Nvidia’s A100, now powers AI applications in different sectors.
Simultaneously, underground networks have emerged to bypass restrictions. Smuggling operations in Shenzhen funnel banned chips through front companies. These tactics could expose investors to regulatory risks, as governments increasingly target third-party intermediaries.
Additionally, Chinese AI startup DeepSeek has made significant strides, developing AI models that require less computing power, challenging the notion that advanced AI development is solely reliant on top-tier hardware. Its success showcases the efficiency and demand for their technology, which complies with U.S. export controls.
Investment Opportunities In China’s IT Ecosystem
Despite risks, three sectors are emerging as areas of interest:
1. AI And Machine Learning
Chinese startups are pivoting to efficiency-driven models. For example, DeepSeek’s open-source AI model, R1, rivals Google and OpenAI’s offerings at a fraction of the cost, showing how innovation often thrives under constraints.
2. Quantum Computing And Novel Materials
Breakthroughs at Peking University—such as 2D transistors and carbon nanotube-based chips—signal China’s shift to “leapfrog” technologies that bypass silicon limitations. Startups in materials science and ternary logic systems could redefine computing paradigms.
3. Legacy Chip Production
While the U.S. targets cutting-edge semiconductors, by 2030, China is expected to dominate the mature node semiconductor market.
Risks And Regulatory Headwinds
Investors must balance these prospects against formidable challenges. Policy volatility remains a persistent concern. The Trump administration’s proposed shift from tiered export caps to bilateral agreements could undermine long-term planning. Technological decoupling is another concern, as China promotes homegrown standards, creating parallel ecosystems that may isolate startups reliant on cross-border collaboration.
Supply chain fragmentation adds further complexity. U.S. efforts to “friend-shore” semiconductor manufacturing have led allies like Japan and the Netherlands to restrict lithography equipment exports, potentially hampering China’s advanced chip ambitions. Startups dependent on cutting-edge fabrication tools could face delays, while those focused on mature nodes may benefit from reduced competition.
Market Considerations
1. Understanding The Importance Of Geographic Diversification: Some investors are diversifying geographically by allocating funds to startups in Southeast Asia or Africa, where China is expanding partnerships that could circumvent U.S. controls.
2. Focusing On Niche Markets: Firms in certain markets may be less vulnerable to geopolitical friction.
3. Monitoring Policy Shifts: Many investors are monitoring U.S.-China negotiations, particularly around SME (semiconductor manufacturing equipment) restrictions, which remain a critical chokepoint.
4. Assessing Domestic Subsidies: China’s $47.5 billion semiconductor fund presents opportunities that some investors are evaluating.
A Calculated Decision
The U.S.-China chip war has created a paradoxical landscape: While export controls aim to stifle Beijing’s ambitions, they’ve inadvertently catalyzed a wave of indigenous innovation. For investors, it’s important to balance caution with opportunism. Startups that adapt to supply chain constraints, leverage state support and target underserved markets may find growth opportunities. However, regulatory unpredictability and technological decoupling demand rigorous due diligence.
As Huang noted, “Waiting around, talking about it, trying to hold people back is not necessarily the best move. The best move is let American do American, let us go after it and win it.” I think the same applies to investors: In this high-stakes race, agility and strategic foresight could be differentiating factors.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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