Why China Loves and Fears Nvidia's H20 Chip

Hindustan Times

3 days ago

U.S. export controls on Nvidia's artificial-intelligence chips have been at the center of U.S.-China trade negotiations for months, yet it appears China is discouraging its companies from buying one of them: the H20s.
Why?
Sales of the chips to Chinese companies helped get China to agree to reboot its exports to the U.S. of rare-earth minerals used in cars, electronics and other products, according to U.S. officials. In more recent days, the Trump administration extracted an unprecedented 15% cut of chip sales to China by Nvidia and AMD in exchange for granting the companies export licenses, which could result in billions of dollars for the U.S. government.
Beijing wants access to advanced Nvidia chips because its companies need them to help train state-of-the-art AI. The H20 isn't advanced enough to train large AI models, but it is one of the best chips on the market for powering inference, the ability of AI programs to tap their training to respond to user prompts. Still, Nvidia can't sell its most powerful chips used for AI training to China because of U.S. export controls.
Chinese authorities are also worried about becoming too reliant on U.S. technology. They have repeatedly pushed domestic chip users to support Chinese chip makers whenever possible so that—eventually—the country can be self-reliant.
China's Huawei and a few other companies already have chips that are useful for AI inference, similar to what Nvidia's H20 chips can do. But there are other obstacles.
China's biggest issue with making chips for AI training is that its access to advanced chip-making equipment and other technology has been blocked by U.S. export controls that seek to maintain America's technology edge. That means even if they have good chip designs, they can hardly produce at scale. China's best chip manufacturer uses less advanced machines, keeping yields relatively low.
Chinese engineers say companies often get hooked on Nvidia's software and tools, making them reluctant to switch to other vendors.
Since the Trump administration relaxed controls on the H20 chip in July, major Chinese tech companies have ordered at least 700,000 of the chips, according to people familiar with the matter. The strong demand has prompted Nvidia to change course and arrange capacity with its contract manufacturer to make new H20s to meet the demand, the people said. Nvidia initially planned to use only existing inventory to fulfill orders.
Nvidia declined to comment on its inventories or manufacturing plans.
Some Chinese AI chip makers told officials in Beijing that U.S. export controls on chips had pushed Chinese companies to adopt homegrown alternatives faster and accelerate self-reliance. Trump's reversal, which will allow Nvidia chips to once again flow to China, could stymie that pace of improvement, they said. Some have also expressed skepticism about the security of Nvidia products.
In late July, China's cyberspace regulator summoned Nvidia representatives to discuss alleged 'backdoor' security risks around the H20 chips, including the ability to track chip location and the possibility of a 'kill switch' in the chips that would be operable under U.S. orders. Chinese officials have also raised concerns over proposed U.S. legislation seeking to add tracking capabilities for advanced chips sold abroad.
Nvidia and others in the industry have lobbied against the bill. The White House has said it wants to study chip tracking but hasn't weighed in on the legislation specifically.
Chinese authorities have demanded that Nvidia go through a cybersecurity review before resuming shipments of the H20, according to people familiar with the matter. The authorities have told Nvidia's biggest Chinese customers, including Alibaba and TikTok parent ByteDance, not to buy Nvidia's H20s until the U.S. company clears the review, the people said.
Nvidia has said there is no backdoor risk. 'Cybersecurity is critically important to us,' a company spokesman told The Wall Street Journal on Tuesday, reiterating that Nvidia chips don't have backdoors.
'The H20 is not a military product or for government infrastructure. China has ample supply of domestic chips to meet its needs. It won't and never has relied on American chips for government operations, just like the U.S. government would not rely on chips from China,' Nvidia's spokesman said. 'We hope to resume sales to approved commercial customers soon. Banning the sale of H20 in China would only harm U.S. economic and technology leadership with zero national-security benefit.'
Write to Raffaele Huang at [e-mail] and Robbie Whelan at [e-mail]