China lowers data centre power costs for major tech firms

China reduced power bills for large data centers run by ByteDance, Alibaba, and Tencent to support the production of local AI chips and reduce the dependence on U.S. technology.

Local governments in some provinces in the country now offer larger subsidies that reduce power bills by up to half for data centers utilizing Chinese AI chips manufactured by Huawei and Cambricon. Officials say this plan will help cover higher energy costs following Beijing’s ban on Nvidia’s AI chips. 

China offers cheaper electricity in exchange for using local AI chips

Many companies operating data centers and cloud facilities in China have no choice but to use local AI chips, which require more electricity and cooling.

As a result, running costs increased over the past year, so the government decided to offer big subsidies. Some of these new subsidies are so generous that they cover the cost of electricity for almost an entire year, allowing companies to save and invest more in AI research and expand their cloud operations.

Currently, Huawei and Cambricon are the primary suppliers of local AI chips; however, their products aren’t as advanced or powerful as those from Nvidia, such as the H100 or H20. However, the Chinese government strongly believes that the only way to advance these chips is to increase the adoption rates across the country.

Large-scale use will help developers collect performance data, adjust product designs, and gain the experience needed to close the gap between local and international technology.

China used the same approach for the solar, telecommunications, and EV industries, and it proved successful because the country is now a world leader in these sectors. The country now hopes to replicate that success with AI chips, as the technology is crucial for its future economy and national security.

Analysts say the new policy will increase investors’ confidence in domestic AI chips and attract more financial support to help improve performance quickly. 

Tech companies expand their AI and cloud projects under the new energy policy

As China now rewards companies that use Chinese-made processors with affordable electricity, major companies such as Tencent, Alibaba, Baidu, and ByteDance have begun making significant changes to their operations.

Tencent Cloud now supports various types of Chinese chips, and its leaders have even stated that reducing their reliance on foreign suppliers comes with long-term benefits. Alibaba and Baidu are also testing their own chip designs and expanding cloud and AI projects built upon them.

According to technology analyst Charlie Dai from Forrester Research, Chinese chips still lack the strong and reliable performance of foreign ones; therefore, many companies have to mix both to meet their performance requirements. However, Research firm Bernstein said more than half of all AI chips used in China will be produced locally, compared with only 17% in 2023.

Beijing also accused Nvidia of violating anti-monopoly laws and instructed Chinese tech firms to cease purchasing some of its chips, such as the RTX Pro 6000D. Furthermore, officials advised companies to avoid Nvidia’s H20 processors in projects that involve government or public data. This move demonstrates China’s concern about its national security in relation to foreign technology, and it also highlights the country’s confidence in its local chipmakers.

As China pushes for local AI chip adoption, the share prices of companies like Cambricon have skyrocketed. Huawei’s chip division, HiSilicon, has even released new versions of its Ascend AI chips and announced a three-year plan to double computing power annually. Smaller start-ups, such as Moore Threads, MetaX, and Enflame, will also go public to raise funds for expansion and research. Analysts say most of them will succeed because their founders once worked for top U.S. chip firms, so they have the experience to take calculated risks. 

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