According to four sources, certain Chinese AI chip companies are constructing weaker processors to access Taiwan Semiconductor Manufacturing Co. (TSMC), which enables fresh tab production despite US sanctions.
Washington has restricted exports of complicated processors like Nvidia and chip fabrication equipment to prevent China’s military from making advances in artificial intelligence and supercomputing. International chipmakers like TSMC, which uses US chipmaking equipment, cannot accept orders to create them due to these restrictions.

According to sources, the October US export restrictions showed how limited China’s production capability for advanced circuits is and how dependent Chinese AI chip design enterprises are on TSMC, the world’s largest semiconductor contract maker.
Chip-related topics in China are sensitive; thus, the four people, one of whom has firsthand information, declined to be identified.
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MetaX and Enflame, two top Chinese AI chip producers, submitted modified chip designs to TSMC in late 2023 to comply with US restrictions, according to two sources.
The companies previously compared their processors to Nvidia’s GPUs.
After selling out of its most advanced GPU, the C500, in China early this year, Shanghai-based MetaX produced the C280, according to the two people.
Former AMD.O executives founded MetaX in 2020, but no one from that company responded to Reuters’ request.
The 2018 Shanghai startup Enflame did not reply to a request for comment.
TSMC said it works with clients to comply with appropriate authorities but did not name specific customers.

MetaX and Enflame are “little giants” chosen by Chinese authorities for their promise in key fields and qualified for official support.
MetaX has additional R&D and manufacturing projects in China and secured government financing this month to build a high-level AI training chip domestically. Enflame distributes chips to state-owned enterprises and collaborates with municipal governments.
CEO Jensen Huang said China has over 50 AI chip firms competing with Nvidia, including Huawei .
Some of those companies have had direct U.S. export prohibitions, prohibiting them from finding foreign foundries and making manufacturing much harder.
Manufacturing challenges for Chinese AI chip startups should favor Huawei, which is outperforming Nvidia in China after export constraints pushed the US company to make inferior chips for the Chinese market.
SMIC ACCESS.
Since tech tensions with the US worsened in 2018, China has invested extensively in semiconductor self-sufficiency.
The government introduced the third version of the China Integrated Circuit Industry Investment Fund last month, which provided $48 billion to the industry, bringing its total allocation since 2014 to almost $100 billion.
Separate local government incentives, tax refunds, and low-interest loans have also helped the sector.
Two sources said only Semiconductor Manufacturing International Corp. (SMIC)  can create large volumes of sophisticated GPUs in China, which has 44 foundries. They noted that SMIC’s production capabilities at that level were reserved for Huawei until recently.
SMIC did not respond to requests for comment.
Huawei rejected the comment, citing 2020 US penalties that denied it international chip production. Washington alleges the firm threatens US national security, which the company disputes.
Three of the four sources said SMIC agreed this year to limit its production capacity to Chinese AI chip companies directly sanctioned by Washington and forbidden from producing abroad.
State-backed Cambricon has struggled since the US imposed limits on it in late 2022 over concerns that it could transmit AI chip technology to the Chinese military, sources say.
Cambricon did not respond to a request for comment after saying it had product supply concerns on an investor call last year.
China accused Washington of expanding national security and using state power to tighten down on Chinese enterprises in response to US penalties.