China is re-enforcing efforts to encourage domestic companies to favour homegrown artificial intelligence (AI) chips over Jensen Huang’s Nvidia advanced semiconductors.
This is to bolster its semiconductor industry and counteract the effects of US-imposed sanctions, according sources who spoke to Bloomberg.
In recent months, Beijing has issued informal directives, advising Chinese companies to reduce their reliance on Nvidia’s H20 chips, which are widely used in AI development.
Although the guidance stops short of an outright ban, it forms part of China’s broader objective to strengthen its technological self-reliance, while cautiously navigating ongoing tensions with the United States, insiders report.
The pressure reflects Beijing’s ambition to accelerate the market share growth of domestic chipmakers such as Cambricon Technologies and Huawei, positioning them as viable alternatives to foreign suppliers. This comes amid heightened concerns over potential further restrictions on US technology exports to China.
What we know
The move follows similar measures earlier this year, where Chinese electric vehicle manufacturers were encouraged to source more components from domestic producers, as the country seeks to reduce its dependence on foreign technologies.
Shares of Nvidia, the world’s most valuable chipmaker, fell by up to 3.9% on Friday following the reports. Nvidia has seen its stock surge over 100% this year, driven by booming demand for its AI processors globally, despite ongoing trade restrictions.
Beijing’s guidance, while non-binding, aligns with a broader industrial policy aimed at safeguarding China’s access to critical technologies. The US government has already banned Nvidia from selling its most advanced AI chips to Chinese customers, forcing the company to modify its products to comply with export control regulations. Nvidia’s H20 line, designed to meet these requirements, remains a key product in China’s AI sector.
What you should know
Despite the growing push to use local chips, Beijing is still prepared to allow companies to purchase foreign semiconductors if necessary to remain competitive in the global AI race, sources added.
Nvidia CEO Jensen Huang, addressing the ongoing situation, said that the company is committed to supporting its Chinese customers within the confines of US regulations. “We have a lot of customers in China who depend on us, and we’ll do our best to support them,” Huang said in an interview with Bloomberg.
China remains a significant market for Nvidia, contributing 12% of its total revenue in the July quarter, amounting to approximately $3.7 billion. However, the company’s CFO Colette Kress acknowledged that trade restrictions have impacted Nvidia’s market share in China, although demand remains robust.
While Chinese chipmakers are making progress, their AI processors still lag behind Nvidia’s offerings. Beijing has committed billions of dollars in subsidies to accelerate domestic semiconductor development, but the technology gap remains a challenge.
Nevertheless, China’s AI sector continues to flourish. Tech giants like ByteDance and Alibaba, along with a wave of emerging startups, are investing heavily in AI innovation.
Despite the regulatory push, some Chinese companies are discreetly purchasing Nvidia chips, anticipating further US sanctions by year-end, while simultaneously increasing their procurement of domestic alternatives to align with Beijing’s directives.