China launches investigation into US’s largest and most valuable chipmaker

China’s market regulator is investigating US chip manufacturer Nvidia for alleged violations of the country’s anti-monopoly law. This move is likely to be announced in retaliation for recent US restrictions on China’s semiconductor industry. According to a report by the Reuters news agency, the State Administration for Market Regulation (SAMR) is also investigating whether Nvidia breached commitments made as part of the 2020 acquisition of Mellanox Technologies. The acquisition deal was approved by the Chinese regulator on these terms, which Nvidia allegedly violated. However, the specific details of Nvidia’s alleged anti-monopoly violations in China remain unclear. Since the announcement, shares of the chipmaker have fallen over 2%.
This investigation follows the recent U.S. crackdown on China’s semiconductor industry, which marked the third restriction in three years. Recently, the US restricted exports to 140 Chinese companies, including makers of chip-making equipment. In response to these restrictions, China also banned the export of gallium, germanium and antimony to the United States. These critical minerals have significant military applications.

What conditions does China impose on Nvidia to approve the Mellanox acquisition agreement?

When Nvidia proposed a $6.9 billion takeover of Israeli chip designer Mellanox Technologies in 2019, there were concerns that China might block the deal amid escalating trade tensions between the US and China. However, Beijing approved the merger in 2020 and imposed several conditions on the US chipmaker and the combined company’s operations in China.
These conditions included prohibitions on forced product bundling, unreasonable trading conditions, purchase restrictions and discriminatory treatment of customers who choose to purchase products individually.

How US restrictions affected Nvidia’s market in China

Nvidia once experienced increasing demand in China. However, that growth was dampened last year as the US implemented policies aimed at preventing China from obtaining the world’s most advanced chips.
Before these restrictions, Nvidia held over 90% of China’s AI chip market. However, the company now faces increasing competition from domestic players, with Huawei emerging as a key challenger.