Recently, the Chinese government adopted a new stance regarding the use of Nvidia H20 chips, specifically regarding the country’s technological security. By requesting direct responses from companies, the country aims to reduce potential vulnerabilities related to the sharing of sensitive data with foreign entities. All this takes place against a backdrop of increasing geopolitical tension in the semiconductor sector.
China tightens controls on Nvidia chip purchases
Chinese authorities have summoned domestic companies including major internet firms Tencent 9888.HK and ByteDance over their purchases of Nvidia’s NVDA.O H20 chips, asking them to explain their reasons and expressed concerns over information risks, three people familiar with the matter told Reuters. The Cyberspace Administration of China (CAC) and other agencies also held meetings with Baidu 0700.HK and smaller Chinese tech firms in recent weeks, said one of the two people and a third source.
The meetings made it clear that the main focus is to ensure that the national industry prioritizes local suppliers, strengthening the internal supply chain. The goal is to ensure that important information is not lost, but also to encourage the development of domestic artificial intelligence solutions.
The Chinese officials asked companies why they needed to buy Nvidia chips when they could purchase from domestic suppliers, the sources. Authorities also expressed concerns that materials Nvidia has asked companies to submit for U.S. government review could contain sensitive information including client data, one of the sources said.
Government highlights national alternatives for AI chips
Nvidia said on Tuesday the H20 chip was “not a military product or for government infrastructure”.
“China has ample supply of domestic chips to meet its needs. It won’t and never has relied on American chips for government operations, just like the U.S. government would not rely on chips from China,” the statement said.
Earlier on Tuesday, Bloomberg News reported that Chinese authorities have urged domestic companies to avoid using Nvidia’s H20 chips, particularly for government-related purposes. Several companies were issued official notices discouraging the use of the H20, a less-advanced chip, mainly for any government or national security-related work by state enterprises or private companies, the report said, citing people familiar with the matter.
Regulatory pressure intensifies after export easing
The guidance to suspend or avoid H2O purchases comes at a time of regulatory transition, as Chinese companies assess the impact of the easing of restrictions on American exports. At the same time, the government seeks to ensure that potential breaches do not compromise its data protection policy.
In a separate report, The Information reported that ByteDance, Alibaba and Tencent had been ordered by the CAC in the past two weeks to suspend Nvidia chip purchases altogether, citing data security concerns.
The CAC directive was communicated at a meeting the regulator held with over a dozen Chinese tech firms, shortly after the Trump administration reversed the export curbs on H20 chips, according to the Information report.
Tensions could jeopardize Nvidia’s recovery in the Chinese market
But even without an outright ban, the concerns expressed by Chinese authorities could threaten Nvidia’s recently restored access to the Chinese market as Chinese companies look to keep in step with regulators. Nvidia designed the H20 specifically for China after U.S. export restrictions on its more advanced AI chips took effect in late 2023. The H20 had since been the most sophisticated AI chip Nvidia was allowed to sell in China.
The Chinese government’s new stance indicates that, even with the reversal of US restrictions, there is still uncertainty for foreign semiconductor companies. The H20 case is an example of how political decisions can quickly alter market prospects. For Nvidia, the need to adapt products to the Chinese reality remains a determining factor in sustaining any significant presence in the country.
GCN.com/Reuters