Xi Jinping is Counting China’s Chips
Recent guidelines from Chinese regulators regarding banks’ limits on U.S. Treasury holdings take on added significance when viewed alongside Beijing’s ongoing pushback against U.S. semiconductor sales. Together, these actions suggest a new strategy from China: systematically cutting its financial and technological reliance on the U.S., even if that means facing short-term setbacks.
Bloomberg reported that Chinese regulators have instructed major banks to limit their U.S. Treasury holdings, citing concerns over concentration risks and market volatility. This guidance was offered just before last week’s call between President Trump and Xi Jinping and was positioned as a mere step in prudent risk management rather than a direct response to geopolitical tensions. However, a closer look at the semiconductor landscape reveals a more cohesive narrative.
Xi’s Focus on Self-Sufficiency
Xi Jinping has determined that achieving autonomy in advanced chips and artificial intelligence is a priority, even at the cost of immediate competitive advantages. After the Trump administration eased export limitations, allowing Nvidia to sell its advanced chips to China, regulators in Beijing reacted strongly. They instructed tech firms to steer clear of these chips, citing security issues, and emphasized the importance of investing in domestic alternatives.
This directive comes despite significant demand for U.S. semiconductors among Chinese AI companies. The latest H200 chip from Nvidia is reportedly six times more powerful than its predecessor, the H20. Currently, Chinese-produced chips lag significantly in performance and cannot be manufactured in comparable volumes. Some industry leaders have expressed concerns, noting that restrictions on high-end chips are hindering their companies’ growth, while others, including Premier Li Qiang, have acknowledged that a shortage of advanced computing resources is an obstacle for China’s AI ambitions.
Still, Xi’s intention is clear: to push domestic tech firms to rely on less effective local chips instead of becoming dependent on American technology that could be revoked at any time. In early 2025, he directed the Politburo to channel resources into overcoming challenges related to high-end chips and to ensure that China’s AI systems do not heavily depend on international suppliers. Consequently, the government has prohibited foreign chips in new state-funded data centers, urging companies like DeepSeek to utilize Huawei chips instead of Nvidia’s, which has delayed product launches.
The Lessons of the Past
Chinese leaders have long been mindful of the risks posed by strategic dependency. Historically, a sudden withdrawal of Soviet support during the Sino-Soviet split in the 1960s left China scrambling for self-reliance, a lesson that has shaped current policy. Simultaneously, memories of the Song Dynasty’s reliance on imported horses continue to loom large, as that dependency ultimately contributed to its downfall.
These advanced semiconductors are now viewed as crucial inputs that China cannot yet produce domestically at scale, maintaining exposure to potential supply disruptions.
In a similar vein, the guidance on Treasury holdings reflects a strategic calculation. While Chinese banks often benefit from the liquidity and perceived safety of U.S. Treasuries, the government has opted to prioritize reducing strategic exposure to American financial assets, especially in light of how past U.S. administrations have employed financial control as a geopolitical tool.
It’s significant to recognize the discipline exhibited by Beijing in this context. Chinese businesses are being compelled to forgo technology they desperately need, while banks are finding themselves in a position to limit holdings of traditionally safe assets. These are tough decisions, not made lightly, but rather as a strategy aimed at fortifying against future vulnerabilities.
Strategic Moves Amidst Calm
Timing is crucial here. The Treasury guidance emerged ahead of diplomatic discussions between the two nations. The push for semiconductor independence has been in the works long before Trump’s return to office. These steps are being taken during a period of relative trade calm, indicating that China is not merely waiting for tensions to rise. Instead, they seem to be strategically employing this time to quietly diminish American influence.
Over the past decade, China’s total holdings of U.S. Treasuries have steadily decreased, dropping from a peak in 2013 to $683 billion in November. However, some analysts suspect that this decline might not be as significant as it seems, with funds likely shifted into European custody. For instance, Belgian Treasury holdings have surged since 2017, raising questions about the actual distribution of these assets.
Both the guidance on Treasuries and semiconductor rules suggest that Chinese leadership has recognized the end of an era marked by economic interdependence that facilitated China’s rise. Instead of anticipating an easing of tensions with the U.S., they appear to be strategizing for a future where reliance on American technology or financial assets may present substantial risks.
Xi’s approach resonates with the views of scholars like sociologist Ya Wen Lei, who argues that advanced technology is crucial for national development and security. This perspective underscores that depending on a potentially hostile U.S. for critical technology does not align with sound strategic reasoning.
Ultimately, Xi seems to be banking on the belief that China can produce domestic alternatives to U.S. semiconductors and mitigate dollar exposure ahead of any potential crisis. He appears willing to tolerate delays in AI progress and suboptimal financial strategies to achieve this objective. Reports indicate that China may also be planning up to $70 billion in additional support for its semiconductor industry.
While U.S. experts might view President Trump’s tariffs as disruptive to global economics, China seems to be advancing towards achieving national technological independence.
