On November 4th, a report from the Financial Times revealed that Oracle, the American technology company, has canceled a significant artificial intelligence (AI) chip rental contract valued at approximately $7 billion with Chinese tech giant Tencent. This contract was poised to be Tencent’s largest overseas chip rental deal.
According to insiders cited in the report, U.S. government officials had expressed concerns to Oracle regarding the five-year rental agreement. This contract would have allowed Tencent access to American chips that are otherwise unavailable in mainland China. Following these communications, both parties decided to terminate the contract.
Furthermore, it has been disclosed that senior officials from the Chinese Communist Party as well as local authorities in Guangdong Province, where Tencent’s headquarters is located, visited the company and urged it to support the development of domestically produced chips.
Originally, the plan was for Tencent to rent up to 100,000 advanced AI chips through several of Oracle’s data centers located in Southeast Asia over the course of five years. The overall estimated value of this contract was around $7 billion, with Tencent required to make an upfront payment of approximately 30% of the total contract amount.
The growing shortage of domestic supply in China, coupled with increasingly stringent U.S. export controls, has prompted Chinese technology firms to seek greater computational capabilities from overseas sources. These rental agreements also offered Chinese companies access to cutting-edge processors from Nvidia, which are not obtainable on the mainland, providing essential computational support for the development and training of AI models since local chips cannot handle such tasks.
In recent years, due to the limited availability of advanced AI chips, mainland Chinese technology firms have become increasingly dependent on overseas data centers to acquire necessary computational resources. Although current regulations do not impose a total ban on such overseas rental arrangements, American tech companies are facing mounting pressure to restrict access to advanced AI computing resources for clients based in mainland China.
The Financial Times further noted that ByteDance and Alibaba stand out as the largest clients from mainland China for Southeast Asian data centers, surpassing Tencent in scale. Additionally, Oracle plays a crucial role as an important cloud service provider for ByteDance across Asia, operating multiple data centers in Malaysia.
As the technological landscape continues to evolve, the implications of these developments on the broader relationship between U.S. and Chinese tech industries remain significant, especially amid rising tensions in international trade and technology.