China bans foreign AI chips in state-funded data centres amid US tensions

Under the new directive, China has ordered data centres that are less than 30 per cent complete to remove foreign chips and scrap any plans to buy them

In its latest bid to curb chip imports from the US, China has issued a directive to data centre projects that have received any state funding to only use domestically-made artificial intelligence (AI) chips, Reuters reported on Wednesday, citing two sources.

 

Beijing has also reportedly directed the data centres that are less than 30 per cent complete to uninstall all the foreign chips and cancel plans to purchase them. However, projects already in advanced stages will be decided on a case-by-case basis, the report added.

 

The move is expected to significantly impact foreign chipmakers, particularly US-based Nvidia, which has been lobbying to sell its chips in China. Most data centres in the country have received state support for their construction, with AI data centre projects attracting over $100 billion in government funding since 2021, according to Reuters.

 

The new directives come just two days after US President Donald Trump said Washington will allow China to "deal with Nvidia but not in terms of the most advanced".

 

Phasing out of foreign chipmakers, boost to domestic players

Beijing has been reluctant to use foreign technology in its critical infrastructure for a while now. Earlier this year, Chinese authorities reportedly summoned Nvidia representatives over suspected security vulnerabilities in the company’s H20 AI chips, the most advanced chip it is allowed to sell in China. Following this, the government urged domestic technology firms to halt orders for Nvidia’s China-specific products.

 

Under the new direction, some projects have already been suspended before breaking ground as a result of the directive, including a facility in a northwestern province that had planned to deploy Nvidia chips, Reuters reported.

 

While the directive poses a setback for foreign chipmakers, it is expected to boost domestic semiconductor companies that have been accelerating efforts to expand production. Leading Chinese chipmakers include Huawei, Semiconductor Manufacturing International Corporation (SMIC), Shanghai-based MetaX, Cambricon Technologies, and Alibaba.