China is making a bold move to sidestep US chip export controls by building one of the world's largest clusters of domestically designed AI processors. DeepSeek, a Chinese AI startup, is planning to deploy at least 160,000 Huawei Ascend 950DT chips at a data centre under construction in Inner Mongolia, marking a significant escalation in Beijing's effort to create an AI ecosystem independent of Nvidia technology.

Why Is China Rushing to Replace Nvidia Chips?

The answer lies in the tightening grip of US export controls. Nvidia's AI processors remain the global industry standard for training and running sophisticated AI models, but their availability in China has been severely restricted by Washington, with sales of certain advanced processors requiring explicit US approval. This dependency has become a strategic vulnerability for Beijing, which is why DeepSeek's Inner Mongolia project represents more than just infrastructure investment; it signals a fundamental shift in how China plans to compete in artificial intelligence.

The proposed cluster would be substantially larger than any other publicly known installation of Huawei AI chips, underscoring the scale of China's ambitions. If completed, it would put DeepSeek's computing power broadly in line with the massive facilities increasingly being built by major Western technology companies like Meta and Google.

What's Holding Back China's Chip Independence?

Despite the ambitious plans, significant obstacles remain. Huawei is expected to produce only a few hundred thousand Ascend 950DT chips this year because of shortages of key components, including advanced memory. The company also needs to meet demand from other customers while attempting to ship limited quantities of its processors to overseas markets. As a result, fulfilling DeepSeek's order could take more than a year, according to people familiar with the situation.

There's another critical constraint: DeepSeek is not currently planning to use the Ascend 950DT processors for training its models, despite Huawei designing and positioning the chips for more demanding training workloads. The startup has continued to rely on Nvidia accelerators for the critical training process, suggesting that Huawei's chips, while improving, still lag behind Nvidia's capabilities for the most computationally intensive AI work.

How Are US and Japan Fighting Back on Mineral Supply?

While China invests in chip alternatives, the US and Japan are racing to secure the raw materials that make advanced semiconductors possible. China's export controls on rare earths and other critical minerals have strained manufacturers in both countries for much of 2026, forcing companies to navigate new licensing rules, longer lead times, and higher material costs for semiconductors, batteries, and defense hardware.

The situation has become acute for specific materials. Beijing restricted indium exports since February 2025, driving prices from about $250 per kilogram to about $805 per kilogram by August 2026. The country also banned exports of gallium and germanium to the US in December 2024, though it suspended those bans in November 2025 as part of a one-year trade truce. Western warehouse prices have skyrocketed to roughly $2,100 per kilogram for gallium and more than $6,000 per kilogram for germanium, compared with domestic Chinese prices of about $247 and $3,100 per kilogram, respectively.

Japan has been hit particularly hard. China's rare earth exports to Japan fell 51% year-on-year in the first half of 2026, more than three times the 16% drop in Beijing's overall rare earth exports over the same period. Japan received no gallium or germanium from China in January or February 2026, only a single gallium shipment in May, and then nothing again in June.

What Steps Are Western Nations Taking to Diversify Supply Chains?

• Government Investment: The US Department of Defense announced a $174 million equity investment on August 31 to help build a gallium production facility at Alcoa Corporation's Wagerup refinery in Australia, backed by Japan's Sojitz Corporation and Export Finance Australia, aiming to supply 100 metric tons of the metal annually for radar, missile defense, and other military systems.
• Critical Minerals Processing: The US Department of Energy said on August 20 that it would invest $500 million in seven projects to expand America's processing of critical minerals and materials, as well as battery manufacturing and recycling capacity, through its Office of Critical Minerals and Energy Innovation.
• Long-Term Alternatives: Japan is exploring recycling and deep-sea extraction as long-term options to secure rare-earth supply, though neither offers a near-term fix.

Despite these efforts, industry leaders acknowledge the challenges are real.

"There are always challenges with countries who want to control certain aspects of the supply chain," said Ian Croston, vice president of operations at Lumentum, a US-listed optical components maker. "Have we seen issues with China? We have them all the time. We have to work around."

Ian Croston, Vice President of Operations at Lumentum

The mineral supply crisis has created unexpected winners. Lumentum and rival Coherent together cannot meet demand from Nvidia and other hyperscale customers, whose orders have shifted from hundreds of lasers to hundreds of millions. Nvidia moved in March to shore up supply, investing $2 billion each in Lumentum and Coherent with purchase commitments and future access to capacity attached.

What Does This Mean for the Global Tech Order?

The convergence of these two trends reveals a fundamental restructuring of global technology competition. China is building AI infrastructure that doesn't depend on US chips, while the US and Japan are scrambling to secure the raw materials that make advanced semiconductors possible. Beijing and Washington are set to discuss whether to extend their one-year trade truce before it expires in November, and any breakdown in those talks could prompt China to tighten its export restrictions further, deepening the squeeze on global supply chains.

For companies caught in the middle, the message is clear: supply chain resilience is no longer optional.

"You always need to understand your suppliers, where they're coming from, and if they're a valued supplier you will know what their constraints are and how we can manage the business," noted Ian Croston. "It is about reducing friction."

Ian Croston, Vice President of Operations at Lumentum

By the time the Inner Mongolia facility becomes operational, China could potentially have several AI computing clusters of a similar scale, according to Bloomberg reporting. However, Chinese facilities would operate with processors that remain less powerful than Nvidia's leading accelerators, suggesting that while China is making progress toward independence, the gap in raw computing capability remains significant. The real question is whether that gap matters more than control over one's own supply chain.