China has ordered state-funded data centre projects to use only domestically developed artificial intelligence (AI) processors, affecting major US chipmakers such as Nvidia, AMD, and Intel. This regulatory guideline is consistent with Beijing’s objective to support indigenous AI chipmakers such as Huawei.
According to two sources who spoke with Reuters, the Chinese government has ordered that new state-funded data centre projects use only locally developed artificial intelligence (AI) processors. This project represents a substantial effort by China to lessen its reliance on foreign technology in its critical infrastructure, especially while tensions between Washington and Beijing have temporarily eased. The primary purpose of this order is to attain self-sufficiency in AI chip manufacturing. China’s access to powerful AI processors, particularly those built by Nvidia, has long been a source of contention in US-China ties, as both countries compete for leadership in high-performance computing and AI developments.
In an interview broadcast on Sunday, US President Donald Trump spoke about his recent discussions with Chinese President Xi Jinping. He added that the US will enable China to control Nvidia’s operations, but this will not apply to the most sophisticated semiconductor processors. This decision is expected to hamper Nvidia‘s efforts to regain a foothold in the Chinese market while also providing local competitors, such as Huawei, with an advantage in expanding their semiconductor product sales.
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China’s most recent edict seeks to enhance market share for Chinese chipmakers, which include both major companies like Huawei and smaller enterprises like Cambricon and MetaX. While these competitors make solutions that compete with Nvidia’s, adoption has been delayed since developers prefer Nvidia’s existing software ecosystem. This push for indigenous chips may boost sales, but it also risks increasing the US-China split in AI computing. In contrast, US IT behemoths are significantly investing in Nvidia-powered data centres, while leading Chinese manufacturers like SMIC suffer manufacturing issues as a result of US restrictions on semiconductor equipment.
According to sources, it is unclear if the Chinese authorities’ latest advisory applies nationwide or only to select areas. Because of the sensitivity of the subject, the regulatory agencies in charge of the order have not been identified. Notably, Nvidia, along with other foreign chip makers like AMD and Intel, supplies data centre processors to China.
Since 2021, China’s AI data centre projects have received more than $100 billion in governmental investment, with several facilities benefiting. However, other ventures, such as a planned Nvidia chip facility, have been halted owing to new government guidelines. This decision represents China’s response to U.S. export restrictions intended to impede its technological development, as well as other retaliatory measures to reduce reliance on American technology.
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The United States has restricted semiconductor supplies to China, citing worries about the military’s potential use of advanced technology. In response, China has sought to restrict domestic enterprises from purchasing powerful Nvidia processors and has demonstrated a data centre that solely uses homegrown AI chips. This year, Beijing barred Micron chips from vital infrastructure, which contributed to Micron’s withdrawal from the Chinese server chip market. Nvidia’s CEO has urged increasing chip sales to China, citing the strategic benefit of keeping China’s AI industry reliant on US technology.
Nvidia’s market share in China’s AI chip sector has fallen from 95% in 2022 to 0%, resulting in major revenue losses for international chipmakers. Reportedly, the United States has permitted the sale of its H20 chips to China while imposing tight export prohibitions on more sophisticated versions such as the B200 and H200, which are still accessible in China through grey markets.
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