On Wednesday, November 5th, Reuters reported, citing two sources, that the Chinese Communist Party has issued internal guidance requiring all newly built data center projects funded by the state to only use domestically produced artificial intelligence (AI) chips.
According to the sources, regulatory authorities of the CCP have issued orders in recent weeks to dismantle all foreign chips installed in data centers with less than 30% construction progress or to cancel purchasing plans; projects with more advanced construction progress are subject to individual reviews.
One source mentioned that due to this directive, some projects have been halted before commencement, including a facility in a province in Northwest China where the initial plan was to deploy chips from American company Nvidia.
Last week, the leaders of the US and China reached a one-year truce on trade tariffs in South Korea, but China has not obtained permission from the US to allow top-tier AI chips like Nvidia’s to enter China.
In addition to Nvidia, foreign chip manufacturers selling data center chips to China include AMD and Intel.
The sources mentioned that it is currently unclear whether the CCP’s guidance applies nationwide or is limited to certain provinces. They did not disclose which regulatory agency issued the command due to the sensitive nature of the matter.
Furthermore, the sources indicated that the new guidance covers Nvidia’s H20 chip, as well as the more powerful B200 and H200 chips. Although the B200 and H200 are banned from being exported to China due to US export controls, they can still be acquired through the black market.
Nevertheless, Chinese chips have struggled to gain traction in the market as Chinese developers, accustomed to the reliable software ecosystem of Nvidia, are hesitant to trust Chinese products.
At the same time, leading Chinese chip manufacturers like SMIC are also facing supply constraints because US sanctions on semiconductor manufacturing equipment have affected their production capabilities for advanced chips.