China mandates that state-funded data centers exclusively use domestic AI chips, banning foreign semiconductor imports.
The Chinese government issued guidance requiring new data center projects that have received any state funds to use only domestically-made artificial intelligence chips, according to Reuters. Chinese regulatory authorities ordered data centers that are less than 30% complete to remove all installed foreign chips or cancel plans to purchase them, while projects in a more advanced stage will be decided on a case-by-case basis. Some projects have already been suspended before breaking ground as a result, including a facility in a northwestern province that had planned to deploy Nvidia chips, which was being developed by a private technology company that received state funding. The move represents one of China's most aggressive steps yet to eliminate foreign technology from its critical infrastructure and achieve its quest for AI chip self-sufficiency.
China's access to advanced AI chips, particularly those made by Nvidia, has been a key point of friction with the United States as the two nations wrestle for dominance in high-end computing power and AI. Trump said in an interview following talks with Chinese President Xi Jinping that Washington will "let them deal with Nvidia but not in terms of the most advanced" chips. Beijing's response has been to prioritize domestic alternatives, with the government stating "if you limit technology, we will come up with our own." The move would exclude foreign chipmakers—including Nvidia, AMD, and Intel—from a significant portion of the Chinese market, particularly as it applies to Nvidia's H20 chips, the most advanced AI chip the U.S. firm is allowed to sell to China, as well as the more powerful B200 and H200 processors.
The broader economic context reveals the scale of China's data center infrastructure investment. AI data center projects in China have drawn over $100 billion in state funding since 2021, according to a Reuters review of government tenders, and most data centers in China have received some form of state funding. Nvidia's current share of the Chinese AI chip market stands at zero percent, compared to 95% in 2022. The directive would dash Nvidia's hopes of regaining Chinese market share while giving local rivals, including Huawei, yet another opportunity to secure more chip sales. Meanwhile, Beijing has taken a series of measures to wean itself off U.S. technology, while the U.S. has been aggressively ramping up industrial policy to boost domestic rare earth mining and refining to reduce reliance on Chinese rare earth production.
China has a range of domestic AI chip companies, from the most prominent—Huawei Technologies—to smaller players such as Shanghai-listed Cambricon and startups including MetaX, Moore Threads, and Enflame. While products from these Chinese companies already rival some of Nvidia's offerings, they have struggled to crack the market, as developers accustomed to Nvidia's reliable software ecosystem have been reluctant to adopt domestic alternatives. The new directive, however, would help boost sales of domestically developed chips by carving out guaranteed market share for Chinese chipmakers. Yet the move also risks widening the U.S.-China gap in AI computing power, particularly as U.S. tech giants like Microsoft, Meta, and OpenAI continue to invest heavily in AI infrastructure development.