China Urges Domestic Companies to Avoid Nvidia's AI Chips

Here's Why China is Urging Its Companies to Forgo Nvidia's Chips - NVIDIA (NASDAQ:NVDA)

Chinese regulators nudge companies toward homegrown semiconductors, hinting at a future of tech independence. In a move to strengthen its semiconductor industry and counter U.S. sanctions, Beijing is reportedly encouraging Chinese firms to prioritize locally produced artificial intelligence (AI) chips over those from Nvidia Corp. NVDA. What Happened: Chinese regulators are discouraging companies from purchasing Nvidia's H20 chips, which are utilized for developing and operating AI models. This policy, more of a guidance than a strict prohibition, is designed to avoid stifling local AI startups and exacerbating US-China tensions. The initiative is aimed at bolstering domestic Chinese AI chipmakers, such as Cambricon Technologies Corp. and Huawei Technologies Co., by helping them capture a larger market share and equipping local tech firms for potential additional US restrictions. Earlier this year, Beijing also promoted local electric-vehicle manufacturers to source more supplies from domestic chipmakers, reports Bloomberg. Following this development, Nvidia shares dipped by up to 3.9% to $119.26 on Friday. In 2022, the US government had prohibited Nvidia from selling its most advanced AI processors to Chinese customers, in an attempt to curb Beijing's technological progress. Also Read: Here's How China's Missile Stockpile Expands, Threatening US Military Supremacy Chinese regulators, including the Ministry of Industry and Information Technology, issued directives to minimize the use of Nvidia, urging companies to depend on domestic vendors like Huawei and Cambricon. Nevertheless, Beijing will continue to allow the procurement of foreign semiconductors over domestic alternatives if necessary for local firms to build the best possible AI systems. Nvidia chose not to comment on the issue. The company's CEO, Jensen Huang, stated that they are striving to serve customers in China while adhering to US government restrictions. Why It Matters: This move by Beijing is a clear indication of its intent to bolster its domestic semiconductor industry and reduce reliance on foreign technology. By encouraging local firms to opt for domestic AI chips, China is not only supporting its local chipmakers but also preparing for any potential escalation in US restrictions. This development is a crucial part of the ongoing tech war between the U.S. and China, with both nations striving to gain technological supremacy. Read Next Possible Espionage Threat? US Officials Warn Of Chinese Interference With Undersea Internet Cables In Pacific This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors. Market News and Data brought to you by Benzinga APIs

China Urges Local Companies to Stay Away From Nvidia's AI Chips

Beijing is stepping up pressure on Chinese companies to buy locally produced artificial intelligence chips instead of Nvidia Corp. products, part of the nation's effort to expand its semiconductor industry and counter US sanctions. Chinese regulators have been discouraging companies from purchasing Nvidia's H20 chips, which are used to develop and run AI models, according to people familiar with the matter. The policy has taken the form of guidance rather than an outright ban, as Beijing wants to avoid handicapping its own AI startups and escalating tensions with the US, said the people, who asked not to be identified because the matter is private.

China Encourages Domestic AI Startups To Refrain From Acquiring NVIDIA's AI Chips To Reduce Dependency On The West

China is now advising AI startups to refrain from acquiring AI chips from NVIDIA to reduce the influence of US policies over the regional markets. The Biden administration gave it all to suppress the growth of the AI industry in China, whether that involves restricting local semiconductor developments or even amending export policies to refrain from China getting access to high-end AI hardware. While China did find multiple workarounds to such US policies, such as GPU renting and leveraging black markets, the AI tech giants such as ByteDance and Alibaba were heavily influenced by the restrictions, ultimately creating new troubles for governments and the growth of AI-focused businesses. Bloomberg now reports that Chinese regulators are recommending AI startups stop buying NVIDIA's H20 AI accelerators, citing that a potential ban would create new problems for such businesses. This move is an attempt to push Chinese AI startups onto the global frontiers without them relying on technology from the West and instead focusing on resources available through in-house sources. We recently reported on the possibility that the US government might ban the export of NVIDIA's H20 AI GPUs to China despite them being "China-compliant" initially. Not just this, but the Biden administration has taken several efforts to thwart the Chinese AI markets by banning a series of NVIDIA's accelerators and equipment, such as the A100s and the H100s. In light of this, multiple firms, such as Huawei and Birentech, have presented their in-house solutions for the markets, and they have gained decent sales traction in the past, but dependency on NVIDIA is still huge. The importance of Chinese consumers to NVIDIA is immense, given that the region accounted for 12% of the firm's quarterly revenue, at around $3.7 billion. So, Team Green can't afford an all-out export ban, but looking at how the situation is proceeding, either NVIDIA would have to introduce a compliant solution every time it sees a policy revision, or they might have to bid farewell to their business in China.