China urges firms to avoid Nvidia H20 chips after Trump resumes sales

Business Times

21 hours ago

[HONG KONG] China has urged local companies to avoid using Nvidia's H20 processors, particularly for government-related purposes, complicating the chipmaker's attempts to recoup billions in lost China revenue as well as the Trump administration's unprecedented push to turn those sales into a US government windfall.
Over the past few weeks, Chinese authorities have sent notices to a range of firms discouraging use of the less-advanced semiconductors, sources familiar with the matter said, asking not to be named discussing sensitive information. The guidance was particularly strong against the use of H20s for any government or national security-related work by state enterprises or private companies, the sources said.
In addition to Nvidia, Beijing's overall push affects artificial intelligence (AI) accelerators from Advanced Micro Devices (AMD), one of the sources said, though it's unclear whether any letters specifically mentioned AMD's MI308 chip. Both companies recently secured Washington's approval to resume lower-end AI chip sales to China, on the controversial and legally questionable condition that they give the US government a 15 per cent cut of the related revenue.
Now, Nvidia and AMD face the challenge that their Chinese customers are under Beijing's pressure not to make those purchases.
Some of Beijing's letters to companies included a series of questions, according to one of the sources, such as why they buy Nvidia H20 chips over local alternatives, whether that's a necessary choice given domestic options, and whether they have found any security issues in the Nvidia hardware. The notices coincide with state media reports that cast doubt on the security and reliability of H20 processors. Chinese regulators have raised those concerns directly with Nvidia, which has repeatedly denied that its chips contain such vulnerabilities.
Right now, China's most stringent chip guidance is limited to sensitive applications, a situation that bears similarities to the way Beijing restricted Tesla vehicles and Apple iPhones in certain institutions and locations over security concerns. China's government also at one point barred the use of Micron Technology chips in critical infrastructure.
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Still, it's possible that Beijing may extend its heavier-handed Nvidia and AMD guidance to a wider range of settings, according to one source with direct knowledge of the deliberations, who said that those conversations are in early stages.
AMD declined to comment, while Nvidia said that 'the H20 is not a military product or for government infrastructure'. China has ample supplies of domestic chips, Nvidia said, and 'will not and never has relied on American chips for government operations'.
China's Ministry of Industry and Information Technology and the Cyberspace Administration of China did not respond to faxed requests for comment on this story, which is based on interviews with more than a half-dozen sources familiar with Beijing's policy discussions. The White House did not respond to a request for comment outside normal business hours.
The Chinese government's posture could make it more difficult for Nvidia and AMD to sell their hardware into the world's largest market for semiconductors. It also raises questions about the Trump administration's explanation for why the US is allowing those exports mere months after effectively banning such sales.
Multiple senior US officials have said that their policy reversal was part of a trade accord with China, but Beijing has publicly indicated that the resumed H20 shipments were not part of any bilateral deal. China's recent notices to companies suggest that the Asian country may not have desired such a concession from Washington in the first place.
Beijing's concerns are twofold. For starters, Chinese officials are worried that Nvidia chips could have location-tracking and remote shutdown capabilities, a suggestion that Nvidia has vehemently denied.
Still, Trump officials are actively exploring whether location-tracking could be used to help curtail suspected smuggling of restricted components into China, and lawmakers have introduced a bill that would require location verification for advanced AI chips.
Second, Beijing is intensely focused on developing its domestic chip capabilities, and wants Chinese companies to shift away from Western chips in favour of local offerings. Officials have previously urged Chinese firms to choose domestic semiconductors over Nvidia H20 processors, Bloomberg reported last September, and have introduced energy efficiency standards that the H20 chip does not meet. But Beijing has stopped short of outright banning the hardware, which Nvidia designed specifically for Chinese customers to abide by years of US curbs on sales of advanced chips to the Asian country.
The H20 chip has less computational power than Nvidia's top offerings, but its strong memory bandwidth is quite well suited to the inference stage of AI development, when models recognise patterns and draw conclusions. That's made it a desirable product to companies such as Alibaba Group Holding and Tencent Holdings in China, where domestic chip champion Huawei Technologies is struggling to produce enough advanced components to meet market demand.
By one estimate from Biden officials, who considered but did not implement controls on H20 sales, losing access to that Nvidia chip would make it three to six times more expensive for Chinese companies to run inference on advanced AI models.
'Beijing appears to be using regulatory uncertainty to create a captive market sufficiently sized to absorb Huawei's supply, while still allowing purchases of H20s to meet actual demands,' said Lennart Heim, an AI-focused researcher at Rand, of China's push for companies to avoid American AI chips. 'This signals that domestic alternatives remain inadequate even as China pressures foreign suppliers.'
US President Donald Trump on Monday called the H20 chip 'obsolete', saying that China 'already has it in a different form'. That echoed previous statements by officials in his administration, who defended the decision to resume H20 exports on the grounds that Huawei already offers comparable chips to the H20.
The US should keep the Chinese AI ecosystem reliant on less-advanced American technology for as long as possible, these officials argue, in order to deprive Huawei of the revenue and know-how that would come from a broader customer base.
Commerce Secretary Howard Lutnick and other Trump officials have also claimed that the H20 move was part of a deal to improve American access to Chinese rare-earth minerals, despite the Trump team's previous assertions that such an arrangement was not on the table.
'As the Chinese deliver their magnets, then the H20s will come off,' Lutnick said last month. Treasury Secretary Scott Bessent said in late July that the magnet issue had been 'solved'.
The first Nvidia H20 and AMD MI308 licenses arrived a bit over a week after Bessent's declaration, after Nvidia chief executive officer Jensen Huang met with the president and both companies agreed to share their China revenue with the US government. BLOOMBERG