China’s entry into the World Trade Organization (WTO) in 2001 brought a promise to many Western Countries that could reap substantial benefits with only limited concerns of suffering a challenge to their technological leadership.
The notion that China boasts little competitive potential as most of their products are copied or reverse-engineered – products of IP theft, some might say – has taken deep roots with many, including, apparently, certain policymakers with President Biden seemingly choosing to attempt to hamstring the Asian country’s technology sector with 2023 semiconductor export restrictions.
The logic, however, is somewhat dubious given that it is seemingly based on faulty memory. The United States, arguably the most competitive country in the world, has itself had its industrial and technological revolution kickstarted by IP theft, primarily from the America of its day – better known as the United Kingdom.
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Why Baidu may benefit from semiconductor restrictions
While there are never guarantees of history rhyming, particularly when the context is profoundly different, it is likely that the microchip exports will, in the long run, only help hasten technological development in China as the country now has little choice but to innovate or again fall behind.
Few companies in the People’s Republic are in a better position to benefit from the temporary hamstringing than the technology giant Baidu (NASDAQ: BIDU).
Indeed, Baidu is heavily involved with its business in several key areas, and, while probably best known as a map provider – including for firms like Tesla Motors (NASDAQ: TSLA) – it has a cloud computing division and works in development and manufacturing of artificial intelligence (AI) chips.
While microchips manufactured in China are, at the time of publication, considered significantly inferior to those made by market leaders such as Nvidia (NASDAQ: NVDA) or Advanced Micro Devices (NASDAQ: AMD), certain local companies have started ordering from domestic producers already in 2023, in the leadup to the export restrictions.
Not just Baidu stock
There is also some overlap between Baidu and the other Chinese firm that is likely to see long-term benefits from the ban – the telecommunications giant Huawei.
In addition to producing its own line of Kunlun AI chips, Baidu has indeed been ordering semiconductors from Huawei in 2023 as a partial replacement for the now-restricted highly advanced Nvidia microchips.
Ultimately, however, it is worth noting that a potential semiconductor boom in China, no matter how plausible, is still in the future, and the country’s companies are still mostly relying on downgraded and restrictions-compliant foreign microchips, albeit reportedly begrudgingly.
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