Nvidia's H20 chips under fire in China: What's behind the dispute?

China has sent official notices to firms urging them to avoid Nvidia's H20 chips in national security projects, citing backdoor risks and pushing for local chip adoption

China is turning up the heat on tech companies in its turf. Chinese regulators have called in major internet companies, including Tencent, ByteDance and Baidu, to explain purchases of Nvidia’s H20 chips, Reuters reported. The Cyberspace Administration of China (CAC) and other government agencies have, in recent weeks, conveyed concerns over potential information risks linked to the US-made processors, specifically those from Nvidia and AMD.

 

Citing a source, Reuters said that authorities were worried that the materials Nvidia asks its buyers to submit to the US government could contain sensitive information, including client data.

 

Beijing 'discourages' Nvidia H20 chip use

 

The report further said that although the companies have not been ordered to stop buying the Nvidia H20 chips, but Chinese officials have discouraged its use, especially in government-related or national security projects.

 

 

Earlier on Tuesday, several companies received official notices urging them to avoid the H20 chips for state enterprise or private sector work tied to national security, according to a report by Bloomberg.

 

Another report claimed that ByteDance, Alibaba and Tencent were told by the CAC in the past two weeks to suspend H20 purchases altogether due to data security concerns, The Information reported on Tuesday. The report said the directive came shortly after the US reversed export curbs on the chip.  Meanwhile, Nvidia on Tuesday clarified that the H20 chip was “not a military product or for government infrastructure”.

 

What's behind China-Nvidia fallout?

 

Tensions between Nvidia and Chinese authorities have grown over the past two years amid tighter US export controls on advanced chips.

 

The US restricted the sale of Nvidia’s most powerful AI chips to China under the Biden administration in 2022, in an effort to slow Beijing’s progress in artificial intelligence and military technologies. In response, Nvidia developed the H20, a less advanced processor designed to comply with US rules while serving the Chinese market. But in April this year, the Trump administration further imposed a new ban specifically on Nvidia’s H20 chips, which had been designed for the Chinese market after previous rounds of export controls.

 

Since the export ban, the H20 became the most sophisticated chip Nvidia could sell in China after the 2022 curbs. The Trump administration reversed the decision in July under a deal that requires Nvidia and AMD to share 15 per cent of revenue from certain China sales with the US government.

 

But beginning this month, Chinese regulators have been urging companies, particularly state-owned enterprises and firms involved in sensitive projects, to avoid using the H20 citing potential “backdoor” security risks, the chip’s technological limitations, and the need to prioritise domestic alternatives such as those made by Huawei.

 

Chinese state media have also increased coverage of alleged security vulnerabilities and shortcomings of Nvidia chips, reflecting Beijing’s broader push for self-reliance in technology.

 

Impact on Nvidia’s China business

 

The scrutiny threatens Nvidia’s $17 billion in annual sales to China, which accounts for 13 per cent of its total revenue.

 

The uncertain trade policies of the US and its back-and-forth attitude towards China has seen the communist nation pushing for accelerating work on local AI processors, even though US restrictions on advanced chip-making equipment, including lithography machines, have limited production capacity. Huawei and other domestic firms have been developing chips that rival the H20’s performance.

 

China’s Ministry of Foreign Affairs stated on Tuesday that it hoped the US would help maintain stability in the global chip supply chain.