Beijing orders domestic businesses to procure half of their chip supplies from local manufacturers, intensifying pressure on companies due to their dependence on foreign semiconductors.
China Pushes for Domestic Chip Independence Amidst US Trade Tensions
In a move aimed at bolstering its domestic semiconductor industry, China has mandated that all domestic data centers must source at least 50% of their computing chips from domestic manufacturers by 2025 [1][2][3][5]. This policy, which began in Shanghai, has now been extended nationwide under the guidance of agencies such as the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT).
The policy's primary objective is to reduce dependency on foreign chip imports, particularly from companies like Nvidia and Intel, and advance digital sovereignty in line with national goals such as the "Made in China 2025" initiative [1]. This initiative targets 70% domestic chip usage by 2025. The mandate applies to both public and private data centers, particularly those handling government or enterprise workloads [1][2].
Potential Impacts on Chinese Chip Adoption and AI Innovation
The policy is expected to drive significant adoption and investment in locally produced chips, bolstering China's semiconductor ecosystem [2][5]. However, Chinese chips are currently deemed suitable for certain AI workloads like inference training, but Nvidia GPUs remain preferred for high-performance AI model training [3]. The mandate could accelerate efforts to improve domestic chip capabilities in AI.
US government export controls limit the availability of the latest Nvidia and AMD chips to China. Companies can only sell "watered-down" versions, with a 15% US government revenue cut [2][5]. This mandate reduces Chinese firms' reliance on US chips. However, renewed US approvals for Nvidia to sell some AI GPUs to China may temporarily reinforce US influence in China's AI infrastructure, though the 50% domestic chip usage rule will limit market share for such imports [4].
Implications for US-China Trade Relations
The mandate reflects China's strategic push for self-sufficiency amid heightened US semiconductor export restrictions and geopolitical tensions [2][5]. It could reduce US chip market penetration in China, potentially heightening trade frictions around technology and component sourcing.
However, US policy remains a balancing act between limiting China's access to cutting-edge tech and maintaining some commercial ties, illustrated by partial re-licensing of GPU sales to China [4]. The drive for domestic chip adoption may partly stem from concerns that current restrictions have led to chip smuggling and other evasive practices [2][5].
Amidst trade blockades and Chinese concerns over tracking hardware built into the graphics cards, China is now looking to drive more investment into locally produced chips. Reports last week indicated that China was discouraging the use of products like Nvidia's H20, hinting at security concerns. Limited access to the latest designs of Nvidia and AMD GPUs could severely limit Chinese innovation in AI. Chinese-produced GPUs are reported to be years behind the latest developments of Nvidia. Furthermore, Chinese-produced chips will not be able to take advantage of the powerful and near-ubiquitous CUDA ecosystem.
In summary, China's new mandate for domestic data centers to use over half of their chips locally is a significant move to advance its semiconductor independence, with major consequences for chip manufacturers, AI capacity development, and the dynamics of US-China technology competition [1][2][3][5].
[1] China Mandates 50% Domestic Chip Usage for Data Centers by 2025 [2] China's New Chip Mandate: What It Means for AI and US-China Tech Competition [3] China's Chip Mandate: A Boost for Domestic AI Development or a Hindrance? [4] Nvidia Wins Partial US Approval to Sell AI Chips to China [5] China's New Chip Mandate: A Threat to US Dominance?
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