China bans foreign AI chips from state-funded data centres

Key takeaways

Beijing has issued new guidance requiring state-funded data centre projects to exclusively use domestically manufactured artificial intelligence chips, according to two sources familiar with the matter who spoke to Reuters.

Chinese regulatory authorities have ordered data centres that are less than 30% complete to remove all installed foreign chips or cancel plans to purchase them, while more advanced projects will be evaluated on a case-by-case basis, the sources said. They declined to be named due to the sensitivity of the matter.

Escalating tensions in the tech competition

The directive represents one of China's most aggressive moves yet to eliminate foreign technology from its critical infrastructure, coming amid a temporary pause in trade hostilities between Washington and Beijing.

It directly challenges the country's quest for AI chip self-sufficiency while the United States and China wrestle for dominance in high-end computing power and artificial intelligence.

At least one project has already been suspended as a result of the guidance. A facility in a northwestern province that had planned to deploy Nvidia chips has been put on hold, according to one source.

The project, being developed by a private technology company that received state funding, was halted before construction began.

The Cyberspace Administration of China and the National Development and Reform Commission, two of Beijing's most powerful regulators, did not respond to requests for comment. It remains unclear whether the guidance applies nationwide or only to certain provinces.

Impact on foreign chipmakers and Trump-Xi discussions

The move directly affects American chipmakers Nvidia, AMD, and Intel, all of which sell data centre chips to China. The decision appears to dash Nvidia's hopes of regaining its Chinese market share, while giving local rivals, particularly Huawei, additional opportunities to secure chip sales.

The timing is particularly notable given recent high-level diplomatic engagement. US President Donald Trump said in an interview aired on Sunday following talks with Chinese President Xi Jinping last week that Washington will "let them deal with Nvidia but not in terms of the most advanced" chips.

"We did discuss chips," Trump told reporters aboard Air Force One. "They're going to be talking to Nvidia and others about taking chips."

However, Trump clarified that discussions did not cover Blackwell chip approvals, saying "we're not talking about the Blackwell," referring to Nvidia's latest generation of AI accelerators.

The domestic chip industry is positioned to gain

The directive creates significant opportunities for China's domestic chipmakers, ranging from industry leader Huawei Technologies to smaller players such as Shanghai-listed Cambricon and startups including MetaX, Moore Threads, and Enflame.

While products from these Chinese companies already rival some of Nvidia's offerings, they have struggled to gain market adoption. Developers accustomed to Nvidia's reliable software ecosystem have been reluctant to adopt domestic alternatives, even under pressure from Chinese authorities.

Beijing has long expressed frustration with Washington's export controls aimed at impeding China's technological progress and has taken a series of retaliatory measures to reduce dependence on US technology. The United States has justified its restrictions by alleging that Chinese military forces would use advanced chips to enhance their capabilities.

China previously discouraged local tech giants from purchasing advanced Nvidia chips over security concerns earlier this year, while showcasing a new data centre powered solely by domestic AI chips. In 2023, Beijing banned the use of Micron's products in its critical infrastructure.

The latest directive carves out even more market share for domestic chipmakers, though it also risks widening the US-China gap in AI computing power.

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