China turns buyers against Nvidia's H20 chips after US Commerce Secretary remarks

Beijing has moved to curb the sale of Nvidia’s H20 artificial-intelligence chip after senior officials took offense to public remarks by Howard Lutnick, the United States Commerce Secretary. 

The effort is aimed at steering major Chinese tech groups away from the H20 chip, a cut-down processor that has become common in local AI projects. People familiar with the matter said three agencies responded after Lutnick’s comments last month. 

“We don’t sell them our best stuff, not our second-best stuff, not even our third-best,” Lutnick told CNBC in July. 

Two people said some senior leaders in China viewed the remarks as “insulting”, prompting policymakers to look for ways to deter purchases. Hence, several tech groups in China either paused or sharply cut planned H20 chip orders, based on comments by sources aware of the situation. 

Nvidia still has appeal in China

Following Huang’s warm welcome in China during his last trip, Chinese customers took a lot of interest in the H20 chips. Their interest was strong enough that Nvidia told TSMC to reopen production lines for the H20 chips.

Regulators have asked for increased use of chips produced domestically recently, but groups from ByteDance to Alibaba had argued their AI work would suffer without Nvidia hardware, hurting China’s chances in its technology race with the west.

Sources close to those companies told the Financial Times that attitudes are now shifting, specifically, for “inference,” the stage when AI systems answer user requests. That change followed broader testing and chip adoption from domestic makers, including Cambricon and Huawei after Washington initially put a ban on the export of the H20 chips.

“Lutnick’s speech gives the coalition [of regulators] one more reason to intensify its efforts to push tech firms to use China’s own chips,” said a person close to the policymakers.

CAC asked companies to abandon Nvidia’s H20 chips following Lutnick’s comments

About 7 days after Lutnick’s remarks, the CAC issued informal “window guidance” to large platforms, including Alibaba and ByteDance, referring to concerns of security. The agency also asked the companies to pause their orders of chips. 

The CAC said in a statement that AI pros from the US revealed that Nvidia’s chips come with a location tracking functionality and could be remotely shut down. However, Nvidia has disputed this claim strongly. 

MIIT also spoke informally with tech executives from China to solidify the stance by CAC, one person said. The NDRC, the state planner leading the drive for independence in technology, then sent out its guidance asking companies to refrain from buying all chips from Nvidia, which included the H20. The NDRC has long been tasked with the promotion of chip independence, along with providing help to domestic companies, including Huawei, to acquire space in the market. 

CAC’s involvement has increased pressure on tech companies to focus on compliance, even though the directions remain sort of informal. If the watchdog issues penalties, it would choke daily operations. 

Despite calls from some in Washington for tighter curbs, Trump has made it clear that he could allow a lesser version of the Nvidia Blackwell chips for exports to China along with the H20 chips. 

Some Chinese firms have delayed H20 orders

Some tech companies in China have delayed H20 orders while they wait to see whether a Blackwell chip specific to China with potentially better performance will be offered, people said. 

Some policymakers from Beijing are also trying to place a ban on chips made in foreign companies altogether for inference, which contributes to most of the demand in AI. However, local supply is limited. Still Beijing is hoping that the upcoming production lines coming next year will ease the shortage.

The foreign ministry of China stated, “As a matter of principle, science, technology, and economic and trade issues should not be politicised, instrumentalised, or weaponised. Containment and suppression will not hold back China’s development.” 

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