China has banned foreign artificial intelligence chips in data centers.

Chinese Government Bans Foreign Chips

China has taken a significant step by banning the use of foreign artificial intelligence chips in state data centers. This ban was implemented against the backdrop of an ongoing technology war with the United States and mandates that state-supported new data center projects exclusively use domestically produced AI chips.

Details of the New Directive

According to a report by Reuters, the ban targets data centers with a completion rate below 30%. These projects are required to eliminate existing foreign chips or abandon plans to acquire new foreign chips. Projects that are nearing completion will be evaluated on a case-by-case basis.

Support for Domestic Producers

China has increased subsidies for large data centers to strengthen domestic chip manufacturers and has reduced energy costs by up to 50%. This move jeopardizes the market share ambitions of major global manufacturers like Nvidia (**NVDA**).

Nvidia's Future in the Chinese Market

Particularly, Nvidia's advanced AI chips have been at the heart of the disagreements with the U.S. The recent ban could hinder Nvidia's efforts to regain market share in China while providing local competitors like Huawei an opportunity to increase their chip sales.

Alternative Strategies

As of January, Alibaba Group (**BABA**) introduced a new computing pooling system called Aegaeon, aiming to reduce its dependency on Nvidia GPUs by 82% in AI models. Former U.S. President Donald Trump’s ban on the sale of Nvidia’s new Blackwell AI chip is also directly related to domestic security concerns.

Nvidia's Hopes

Nvidia CEO Jensen Huang has expressed optimism regarding the resale of its advanced chips to China, but emphasizes the importance of addressing U.S. national security concerns. Meanwhile, other U.S. chip makers like Advanced Micro Devices (**AMD**) and Intel (**INTC**) continue to supply data center chips to China.