Chinese government bans use of foreign AI chips in state-funded data centers: report

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China has issued guidance to new data center projects that have received any state funds to only use locally made AI chips, Reuters reported, citing people with knowledge of the matter.

Shares of Advanced Micro Devices (AMD [https://seekingalpha.com/symbol/AMD]) fell about 4%, while Nvidia's (NVDA [https://seekingalpha.com/symbol/NVDA]) and Intel's (INTC [https://seekingalpha.com/symbol/INTC]) stock dipped about 1% premarket on Wednesday.

In recent weeks, Chinese regulatory agencies have ordered such data centers that are less than 30% complete to remove all installed foreign chips or cancel plans to buy them, while projects in a more advanced stage will be decided on a case-by-case basis, the report added.

The move could be seen as one of China's strict steps to end reliance on foreign technology for its vital infrastructure amid a pause in trade tensions between the U.S. and the Asian nation.

China's access to advanced AI chips, including those made by Nvidia (NVDA [https://seekingalpha.com/symbol/NVDA]), has been a key point of contention with the U.S.

On Sunday, U.S. President Donald Trump said that Nvidia's (NVDA [https://seekingalpha.com/symbol/NVDA]) most advanced chips will be reserved [https://seekingalpha.com/news/4512718-trump-says-china-others-may-face-limits-on-access-to-nvidias-top-ai-chips] for U.S. companies and kept out of China and other countries. Trump noted that only U.S. customers should have access to the top-end Blackwell chips offered by the AI giant.

It was not clear if the guidance applies nationwide or only to certain provinces, the report noted. The sources did not identify which Chinese regulatory bodies had issued the order.

Other than Nvidia (NVDA [https://seekingalpha.com/symbol/NVDA]), other chipmakers such as Advanced Micro Devices (AMD [https://seekingalpha.com/symbol/AMD]) and Intel (INTC [https://seekingalpha.com/symbol/INTC]) also sell chips to Nvidia.

Nvidia, AMD and Intel did not immediately respond to a request for comment from Seeking Alpha.

AI data centre projects in China have seen more than $100B in state funding since 2021, as per a Reuters review of government tenders. Most data centers in China have received some form of state funding to help with their construction, but it is not immediately clear how many projects are subject to the new directive, the report noted.

Some projects have already been suspended before breaking ground due to the guidance, including a facility in a northwestern province that had planned to use Nvidia chips, the report added.

The project, which is being developed by a private technology company that received state funding, has been put on hold, according to the report.

In August, Chinese regulators reportedly ordered [https://seekingalpha.com/news/4483894-china-orders-halt-of-nvidia-h20-imports-over-security-issues-report] domestic big tech companies to suspend purchases of Nvidia's H20 GPUs over over security concerns. Again in September, the Cyberspace Administration of China banned [https://seekingalpha.com/news/4495541-china-orders-local-tech-firms-to-stop-buying-nvidias-ai-chips-report] the nation's largest technology companies from buying Nvidia’s chips.

Nvidia CEO Jensen Huang has repeatedly urged the U.S. to allow the sale of more AI chips to China, noting that keeping its China's AI industry dependent on U.S. hardware was good for America's interests, the report noted.

With the latest guidance, the Chinese government aims to carve out a bigger market share for local chipmakers. China has several AI chip companies, such as Huawei Technologies, Cambricon and startups including MetaX, Moore Threads, and Enflame.

In September, Huawei unveiled [https://seekingalpha.com/news/4495909-huawei-unveils-new-ai-chip-roadmap-to-challenge-nvidia-plans-four-ascend-releases-by-2028] a new AI chip roadmap and plans four Ascend chip releases by 2028.

China's guidance could help boost sales of locally made chips, but it also risks widening the U.S.-China gap in AI computing power.

U.S. companies such as Microsoft (MSFT [https://seekingalpha.com/symbol/MSFT]), Meta Platforms (META [https://seekingalpha.com/symbol/META]) and OpenAI (OPENAI [https://seekingalpha.com/symbol/OPENAI]) have spent and allocated billions of dollars to build data centers powered by Nvidia's most advanced chips.

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