China advises companies to avoid Nvidia chips

PROTECTIONISM:
China hopes to help domestic chipmakers gain more market share while preparing local technology companies for the possibility of further U.S. sanctions

Beijing is increasing pressure on Chinese companies to buy locally produced artificial intelligence (AI) chips instead of Nvidia Corp products, part of the country’s efforts to develop its semiconductor industry and counter U.S. sanctions.

Chinese regulators are discouraging companies from purchasing Nvidia H20 chips, which are used to develop and run artificial intelligence models, sources familiar with the matter said.

The policy has taken the form of guidelines rather than an outright ban as Beijing wants to avoid hampering its own artificial intelligence startups and escalating tensions with the U.S., said the sources, who asked not to be named because the matter is private.

Photo: AFP

The move is intended to help domestic Chinese AI chipmakers gain more market share while preparing local technology companies for any potential additional U.S. restrictions, sources said.

The country’s leading AI processor makers include Cambricon Technologies Corp (寒武紀) and Huawei Technologies Co (華為).

The US government has banned Nvidia from selling its most advanced AI processors to Chinese customers in 2022, part of an attempt to curb Beijing’s technological advances. Nvidia, based in Santa Clara, California, modified subsequent versions of the chips so that they could be sold under U.S. Department of Commerce regulations. The H20 line meets these criteria.

In recent months, several Chinese regulators, including the powerful Ministry of Industry and Information Technology, have issued so-called windowing guidelines – instructions that have no legal force – to limit the use of Nvidia, sources said.

They added that the announcement was aimed at encouraging companies to rely on domestic suppliers such as Huawei and Cambricon.

According to another, Beijing also strengthened its message through a local trade group.

At the same time, Chinese officials want local companies to build the best artificial intelligence systems possible. If that meant having to buy foreign semiconductors instead of domestic alternatives, Beijing would still tolerate it, said sources familiar with China’s artificial intelligence policy.

Nvidia declined to comment. China’s Ministry of Commerce, Ministry of Information and Technology and Cyberspace Administration did not respond to faxed requests for comment.

Moreover, Nvidia CEO Jensen Huang (黃仁勳) said on Friday that it is doing everything it can to serve customers in China and comply with U.S. government restrictions.

“The first thing we need to do is comply with all the rules and regulations imposed,” he said. “And in the meantime, please do everything we can to compete in the markets we serve. We have many customers there who rely on us and we will do our best to support them.

Nvidia, the world’s most valuable chipmaker, is seeing sales soar as data center operators around the world scramble to buy more of its processors. China continues to share in this growth, although trade restrictions have taken a toll. In the July quarter, the company got 12 percent of its revenue, or about $3.7 billion, from the country, including Hong Kong. This is over 30 percent more than a year earlier.

“Revenues from our China data centers grew sequentially in the second quarter and are a significant contributor to our data center revenues,” Colette Kress, Nvidia’s chief financial officer, said on an earnings call last month.

“As a percentage of total data center revenues, it remains below levels seen before the introduction of export controls. We continue to expect the Chinese market to be very competitive in the future,” she said.

Meanwhile, Chinese designers and chipmakers are working to introduce alternatives to Nvidia. Beijing has offered billions in subsidies for the semiconductor sector, but local AI chips lag far behind Nvidia’s bid.

China actually has a growing artificial intelligence sector despite US restrictions. ByteDance Ltd (字節跳動) and Alibaba Group Holding Ltd (阿里巴巴) are investing aggressively as a group of startups jockey for leadership. There are six so-called tigers in the development of large language models, the key technology behind generative artificial intelligence: 01.AI (零一萬物), Baichuan (百川智能), Moonshot (月之暗面), MiniMax (稀宇科技) . Stepfun (階躍星辰) and Zhipu (智譜).

Some companies are turning a blind eye to China’s decree to avoid H20 chips and rushing to buy more ahead of expected U.S. sanctions later this year, while also buying homegrown Huawei chips to please Beijing, one of the sources said.