Bill Bishop on China's Nvidia probe, TikTok framework deal, and CCP chip indigenization strategy

the Biden administration ratcheted up controls on China to access China's access to high-end chips. Antitrust lawyers familiar with the case said Nvidia was in a tough spot because it had to halt supply of its most advanced chips for to China to comply with the US export controls.

But that opened it up to criticism from Beijing. We will talk to Bill Bishop who is in the reream waiting room about everything that's going on in China with regard to Nvidia and elsewhere. So, let's bring in Bill Bishop from the root stream waiting room. How you doing, Bill? Good. How are you? I'm fantastic.

How are you? Have a good weekend? I'm good. I had a great weekend. And I I have to say thank you, of course. And I have to say Tashi's Laboo. Yes. And I will I will say that TVPN you you top tick the Laboo bubble. Since you said you were sending this, I think PopMart stock is down like 20%. So, good job. Let's go.

seen on secondary market. So, it's awesome. We did we did say we were buying it so your dog could rip it apart to I actually examined it and decided there might be some toxic toxic pieces. So, I'm keeping it on. Yeah. Yeah. That is so smart. That's great.

Uh anyway, we were just reading through this uh the latest news on the uh the China uh saying that Nvidia violated antitrust law.

I was wondering if you had uh any thoughts and then we can kind of go into just generally give us the update on what you've been talking about on your fantastic uh blog uh sinusism and then also sharp China which uh is your uh podcast which everyone should go subscribe to. It's in the stratey bundle. It's fantastic.

Um but did you see this news? What was your take on the uh on the Nvidia antitrust uh debate going on in China? So it's interesting timing. It relates to this Melanox acquisition from a few years ago and that um Nvidia had agreed to uh certain terms. I think most were public.

I think at least one term was not disclosed and now um you know the the SM AMR which is the the anti- monopoly group is saying that they violated one of the um at least one of the provisions and the timing of course is not coincidental right it dropped just as uh the US and China negotiators were meeting in Madrid.

Um it comes two days or three days after the announcement of investigation into the dumping of analog chips um as well as u discrimination in the sort of blocking of sales of certain um other chips.

And so I think this is one I think Nvidia technically could be in a lot of trouble because if they are found to be violating the um their agreement I believe they can be penalized up to 10% of their uh global revenue in addition and then have that be multiplied two to five times.

So they could be looking at several billions of dollars several billion dollars of fines from the Chinese government if it proceeds to its conclusion and they're found to be in violation of these u of the agreement.

uh you know my guess is that this the timing is again not coincidental and it is it is part of a um a way to further encourage Nvidia and the US government to pull back on export controls. Yeah. Uh and you know clearly Nvidia is already motivated to do that. This may motivate them more.

Um and whether or not then the Chinese government uses this as part of this broader discussion around export controls that's not clear. Now in the the previous segment you were talking about Tik Tok. What was interesting in these discussions was from the statement so far from the US side.

They said that the Chinese tried to bring in export controls and other things, but the US side was solely focused on Tik Tok and so um you know, but then they're going to keep talking and they're going to extend the ne extend the deadline for the imposition of additional tariffs and they're just going to keep negotiating and and so I think that that this is all part of the positioning on the Chinese side to push back on the US government.

The announcement last Friday of this investigation, the dumping of analog chips is probably the Chinese getting ahead of what's to be expected of this 232 investigation from the US trade representatives office around uh legacy chips from China. Um and so there's just a lot of moving pieces.

I I don't think Nvidia is in any trouble immediately because of this investigation, but it just makes their um makes their prospects in China a little murkier.

And again, I think one of the one of the sort of way points for investors to look at is assuming President Trump approves this modified Blackwell chip, the I think it's the B30 that um Nvidia is trying to create to sell to China. It's it's much better than the H20.

It's not as good as Blackwell, but it's much better than anything that the uh the Chinese can make anytime soon.

Um, if the Trump administration says yes, Nvidia will will give grant you licenses, does the Chinese side actually start buying or do they do what they did with the H20 and basically say we're not going to buy and we still don't know why they don't want to buy the H20s, but it certainly doesn't look good that that wasn't a good outcome for Nvidia.

Yeah, it feels like there's definitely like multi-party interests here with uh the CCP maybe not wanting a bunch of chips to come in from Nvidia because they want to spur their their domestic homegrown chip manufacturing business and then but then the companies Alibaba and Deep Seek like these companies just want the best chips to actually compete and so there's there's like a tension there.

Uh is is is that kind of the correct narrative?

No, that certainly is how how I look at it and I think that um you know ultimately and that's why I said you know if Trump administration approves the the B30 and China still says no then I think the answer will be that the party the the sort of security forces the party forces have decided that they are going to just rip off the band-aid and move try and move faster towards indigen indigenization of the of the of chips.

um if it turns out that actually they start buying B30s in bulk then maybe the H20 rejection was effectively a ploy and said no no no we want the better stuff right and so they set up this sort of made it look like there's some confusion or you know but ultimately it it it it's a benefit to Nvidia we just don't know at this point one of the big questions too is you know certainly a company that would want Nvidia to to in Chinese companies to not buy Nvidia would be Huawei right because Huawei has the Ascend series they're the ones who or claim they have potentially the best potential ultimate competitor to Nvidia chips is whether or not Huawei has actually been overpromising what they've been able to make both in terms of actual capabilities and also in terms of production volumes and do you think so there's some whispers that the Huawei was sort of blowing smoke up towards the top of the system that they're further ahead than they are do you think uh there are certain members of the CCP that uh and the party broadly that are um extremely AGI And then others that are just thinking like, you know, this is an extending technology uh for the internet and it's going to we're going to develop, you know, valuable services and and software with it, but we're not building machine gods.

So we it's okay if we get sort of set back uh if we set ourselves back, you know, five or so years because uh it's not, you know, necessarily critical to national security. That's a that's a great and key question.

And I think you look at uh I think it was last week or the week before the Chinese issued this AI plus action plan um which really is more about how to bring AI into um a whole bunch of different sectors. A big focus on industrial applications not at all AGI pill.

really basically how to um make business efficiency business efficiency increase governing efficiency make it better for the police right get AI models for the police to do better predictive policing and better social governance improve education improve the healthare system not at all they don't need the Ferrari of of AI models they don't need the Ferrari of chips they need good enough and the question then is at least on the open source models in China like like Quen like the Deepseek are they good enough for what the Chinese need and and that and and are the chips that they're now starting to make in more more capacity and more volume are they going to be good enough for what they need?

And that ultimately I think is you know if the answer is yes then Nvidia is probably screwed in China. If the answer is no then they still have a bit of runway. Uh give us the update on Tik Tok.

It feels like everyone was there was like an odd coalition on the left and the right like last year everyone was like banned Tik Tok. It felt like it was a fever pitch. It was a rallying cry for uh tech execs and it's like everyone had a good reason to want to ban it.

Uh like the the you know a lot of the tech leaders compete with Tik Tok whether YouTube reels or or X or or shorts on Instagram. Um and then there were the security and the China hawks.

There were so many people that were saying like yes and then the narrative kind of turned to like well Trump kind of liked Tik Tok and it helped him get elected and he felt like there was a ground swell of support on Tik Tok and so maybe he wasn't worried about it but now we've like kicked it out a couple Yeah.

And then the the new kind of potential emerged of of the the cloud contracts switching hands and that felt like the example I don't know if you heard but the example we gave is like if you had a a a a national you know rival geopolitical rival and they owned a popular newspaper in your country and you didn't like that uh and they said well it's okay we'll let you print the newspaper and we'll let you do like physically distribute it.

you'd be like, "Well, it's not really enough because I want to control I don't want you controlling what's in the headline and what's on the front page and how the con, you know. " Yeah.

And it feels like if if we end up with a scenario where like Oracle gets a big even bigger cloud contract from from bite dance and that's the end of it, that doesn't feel like it's resolved kind of the key issues that the the real hawks were were worried about.

Well, so a few months ago, I had a conversation with one of the drafters of the of the law that um effectively banned Tik Tok if they didn't meet certain conditions. And this person just said, you know, the only thing we didn't contemplate was a president who didn't enforce the law.

And so what's been happening is the extensions that President Trump has been giving, none of them are legal, right? That they're completely blatantly in violation of the law. Doesn't matter, right?

And so now though the the question is in this particular you know today we got the news that they apparently have some framework deal.

Trump and and Ci are going to talk about it on Friday is whether or not the framework deal involves both um the bite dance share going below 20% um of new code or whatever they're going to call it and that the Chinese side the bite dance has no input no connection to the algorithm and so because the law is very clear and actually a few months ago some of the investors in this mooded um sort of consortium that was going to was going to create this new code to buy out Tik Tok us.

They were trying they were lobbying on Capitol Hill to get a sentence inserted in any bill that would take it to effectively indemnify them against um breaking the law because they understood, you know, they're potentially putting billions of dollars at risk.

They they they are smart enough that they don't want to actually do that in a deal that technically is in violation of a law on the books that survived a Supreme Court challenge, right? Nine to zero.

And so, you know, that that this is I think if what we've and we don't have really any details yet of what the Chinese and the US sides agree to today in Madrid, but if it turns out that the Chinese side the bite dance is going to go below 20%.

And for example, the the US the new code is going to have to rewrite the algorithm then it probably and there's no data connection. There's no technical connection to China. It's complet it's logically physically separated from anything that touches China. then that deal probably works. But then what is Tik Tok?

Who's going to write the new algorithm? I mean, last I heard machine language engineers are like expensive and hard to find these days. Well, yeah. And we have some of the smartest Yeah.

We have some of the smartest engineers in the world at YouTube and and Instagram like trying to make the algorithm as good as people report Tik Tok is. Right.

I think that uh yeah I wonder how much of a of an olive branch can be given on the cap table because there's a lot of American investors who invested in bite dance or Tik Tok have huge stakes. Jeff Yas at SE Sesuana is a good example 15% ownership for General Atlantic. Yeah, General.

And so like there's a there's a very like neutral outcome here where you say, "Oh, well, like you have this massive stake. We don't want you to take this huge right down. You can just have an even bigger stake in the US in the US entity.

" Uh and and so that's probably even more valuable and you get your money out of China. So you have more liquidity. You can IPO the company. There's a lot of things that you can do there. And it's not it's not value. I one of the things it probably does is it probably unlocks if this deal gets done.

It probably helps helps if bitean wants bite dance wants to helps them um sort of clear the path to an IPO in Hong Kong. Sure. Right. Which which and again the US all the investors I mean bite dance I think in the last private round was valued at like 500 billion. Right. So there's a lot of money at stake here.

You mentioned Oracle you know to to assuage US regulators concerns. Oracle and bite dance had gotten together. They done this thing called project Texas where they were going to segment out all the US user data.

Um they proposed that they would actually review the code, the algorithm code, even though the algorithm would be updated from China. They would have engineers who could go through the code and make sure it wasn't being manipulated. That didn't satisfy the national national security concerns.

That's one of the reasons why the law was passed last April in April 2024. Um there had been talk earlier this year of a project 2. 0 to kind of cut a deal.

But ultimately, I think there were enough people in the GOP on the Hill who made it clear to the Trump administration that actually that wasn't going to fly because it still was was in violation of the law that passed last April. Um and so so really I think again we'll see what has come out of this.

What's interesting too is how the US side made this Tik Tok the focus of the uh negotiations this time. Not soybeans. You know, there's an article in the Washington New York Times today about how soybe soybean farmers are about to go bankrupt because China's not buying any soybeans. That wasn't the focus.

The focus was Tik Tok. And because you think about it, there's only upside for the president, right? And and the investors because now if if Tik Tok is saved, Tik Tok is beholden to the president. It's another algorithm that probably, you know, has favorable feelings towards President Trump.

He's helped a bunch of big investors, including Oracle. It's it's a it's an interesting moment when like you said a year and a half ago people were going nuts on AC across the across the aisle about how dangerous Tik Tok was and now it's like okay whatever as long as it abides by the law whatever.

Give me the broader update on uh what's happening in Beijing and Cining's like grip on power. There's been some rumors that maybe he's losing control. There's always rumors um like how are things just overall looking there?

He was recently caught on a hot mic saying he's going to live to 150, which I think is like a very watching a little too much Brian Johnson. So, I'm wondering like um honestly I think those I mean those rumors from what we can see there's nothing to them. Yeah.

And and what we saw at the you know the big parade on September 3rd uh some other personnel stuff there's just people every every year there are these rumor cycles. They came a little earlier this year, but every year they turn out to be BS. And so far they're looking like BS. Oh well.

Uh Trump said this morning that he thinks that uh he thinks companies in the US shouldn't have to report quarterly. He referenced Chinese companies thinking on a 50 to 100year time horizon. Yet Chinese public companies uh do have to report quarterly.

Do you know if there if do you know if are are I mean is it is it common for p you know public company management teams in China to say like you know we just missed on everything this quarter but let's look at this at 100 years let's zoom out a little bit is that no that's that's one of those true social posts that just who knows where it came from.

Yeah, I was saying it's probably Trump. Trump Trump has a public company. He's like realizes how how laborious quarterly reporting is for his team and he wants to free them up to work on product.

Free them up and now and now the the lobbyists for like the accounting firms and the lawyer the law firms are going to be cycling up in DC like wait a minute we make money on a quart. Importantly quarterly reporting is their business. Yeah, there's definitely some people that are indexed to that.

I mean we were joking about that. We cover earnings. We want to know as many earnings reports as possible. We like that. Let's do daily daily earnings. Daily earnings. So CEOs can say, you know, take that day's revenue and say we're at you and multiply it by 365 and that's your revenue.

Just have a public view of like your zero or or ramp or whatever your accounting system is. Yeah. Yep. There you go.

Um what's the latest any updates on the export uh tip donation tax whatever whatever it was with Nvidia is 15% 15% for the big man yeah um no just status it so I think but again I think what you know a broader perspective um there last week a nominee for an important position at the um department of commerce's BIS which oversees export controls his his nomination with was withdrawn.

He he was someone who's quite hawkish on um chip like high technology exports to China. Um there right now the Nvidia the chip firms are um I think feeling like they're in a pretty good position here in DC and there's I think going to be a lot more uh pressure to try and roll back a bunch of these export controls.

I think that the actions from the Chinese side, maybe potentially Nvidia today, that announcement, but then the announcements last Friday, um, also may give ammunition here to the folks who are proponents of rolling back those those chip export controls to further push the White House to say this is not working.

We need to take a different approach. And so that ultimately would be good for for a lot of these chip companies. Again, back to the Nvidia conversation, the question is, will the Chinese still buy the better Nvidia chips?

And I mean I think they'd be crazy not to but again this is not necessarily an economic or technical decisions solely. Totally. Uh what are you when when will we have clarity or will we have clarity on the conversations in Madrid?

So I think the call Friday should um you know the supposedly she and she and Trump are talking Friday. After that potentially we'll get more u more information.

So far there have been, you know, both both negotiating teams gave statements and there's been a little bit of leaking to the press, but there's nothing um like specifically around Tik Tok there just very very few if any details other than there's some sort of a framework agreement and you guys I mean you guys have been in the tech world for a long time.

I what does a framework agreement really mean and how is it legally binding and sort of where Yeah, it sort of feels like you say framework when you still haven't figured out all the details. Yeah, makes sense. Well, we'll be watching concepts of a plan.

I don't Yeah, I don't like these private phone calls between Cin Ping and Donald Trump. I would prefer a podcast. I want them to sit down together with a substack live substack. TBPN, right? Open invitation to Cunping and Donald Trump. If you want to come hash it out live on TBPN, we're happy to host you.