Beijing urging local firms to stay away from Nvidia's AI chips

Beijing is stepping up pressure on Chinese companies to buy locally produced artificial intelligence (AI) chips instead of Nvidia products, as 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 start-ups and escalating tensions with the US, said the people, who asked not to be identified because the matter is private.

The move is designed to help domestic Chinese AI chipmakers gain more market share while preparing local tech companies for any potential additional US restrictions, the sources said. The country's leading makers of AI processors include Cambricon Technologies and Huawei Technologies. Earlier in 2024, Beijing also told local electric vehicle makers to procure more of their supplies from local chipmakers, part of its campaign to reach self-sufficiency in critical technologies.

Nvidia shares fell as much as 3.9 per cent to US$119.26 on Sept 27, extending an earlier decline, after Bloomberg reported the news. The stock has more than doubled in 2024.

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