AI Bubble Fears Could Weaken US Chip Restricitons

By John Liu, Bloomberg markets live reporter and strategist

Three things we learned last week:

1. As concerns over an artificial intelligence bubble intensify in US stock markets, the Trump administration is considering options to ease restrictions on chip exports to China.

US officials are said to have early discussions on whether to let Nvidia Corp. sell its H200 AI chips to China. The potential move would constitute a victory for the world’s most valuable company.

Nvidia has been lobbying against the strict US chip export controls on China, arguing that such curbs would hand China’s massive AI market over to local competitors like Huawei Technologies Co.

Enthusiasm for AI is fading among American investors. Nvidia’s stock price has fallen 13.6% from its October high, despite reporting stronger-than-expected revenue forecasts last week.

Allowing China to buy the more powerful H200 will bolster both Nvidia’s industry domination and the AI ambitions of China’s tech giants. Such a move will likely be hailed by investors on both sides of the Pacific.

The discussions will face opposition from China hawks in Washington. Federal prosecutors just charged two Chinese nationals and two US citizens with a scheme to smuggle advanced Nvidia chips to China.

* * * 

2. China is considering additional fiscal stimulus to support the real estate market, a move that serves as both crisis management and economic rebalancing.

Policymakers are said to consider a slew of options, such as providing new homebuyers mortgage subsidies, raising income tax rebates for mortgage borrowers, and lowering home transaction costs.

China’s struggling property sector remains among its most pressing economic issues. The slump in home sales and prices has worsened in recent months, with some indicators approaching the levels seen last year when China rolled out a package of rescue measures in September 2024.

A pivot of fiscal policy in favor of greater support to the housing market is timely. The room to cut borrowing costs further is limited as banks’ asset quality are under pressure. After all, combating deflation requires boosting household income, not investment.

* * * 

3. China’s euro bond sale drew record demand last week in the latest sign of growing investor appetite for the country’s debt.

China’s Ministry of Finance has raised a combined $8.6 billion by tapping both the dollar and euro bond markets in recent weeks, with bids for the two bonds reaching a record total of at least $234 billion.

Investors’ robust appetite allowed China to borrow dollars at essentially the same cost as the US. Its euro-denominated bond was also sold at yields slightly above the benchmarks.

Global investors’ appetite for yuan-dominated sovereign notes is also rebounding. Offshore institutions increased holdings of China’s onshore government bonds in October, ending a four-month selling streak.