Chinese Regulators Announce Ban on Buying Nvidia Chips, Showcasing Confidence in Domestic Alternatives

China has begun to cut its last ties to America’s artificial intelligence (AI) ecosystem. On September 17, the Cyberspace Administration of China (CAC) issued guidance to Chinese firms advising them against purchasing certain Nvidia chips, effectively banning their import and use throughout the country’s tech sector.

The announcement, coupled with China’s gradually improving domestic semiconductor industry, highlights Beijing’s expanded emphasis on technical self-sufficiency to secure economic and military prowess, even at the cost of a less developed domestic AI sector.

Ban Follows Chinese Anti-Trust Investigation Into Nvidia  

The ban extends to Nvidia’s RTX Pro 6000D chip, which had been specifically designed for the Chinese market to power industrial AI systems employed in manufacturing and other industrial settings. Chinese regulators had previously warned Chinese firms against purchasing Nvidia’s H20 chip, which remains popular due to its use in deploying AI systems at scale. The H20 was recently approved for sale in China by the Trump administration, but concerns over U.S. export controls remain.

China has ramped up pressure on Nvidia amid ongoing trade talks with the United States. Several days prior to the ban, Chinese market regulators released a preliminary investigation accusing Nvidia of violating Chinese anti-trust law due to the firm’s 2020 acquisition of Israeli equipment maker Mellanox Technologies.

China Has Accelerated Efforts To Indigenize Chip Supply Chain

China has reportedly begun to test manufacturing equipment that will allow it to domestically produce more advanced chips — a major step toward developing a fully domestic AI ecosystem. Shortly following CAC’s announcement, China’s Semiconductor Manufacturing International Corporation (SMIC) released plans to test the country’s first domestically produced immersion DUV lithography — a machine that may allow SMIC to eventually manufacture powerful 7-nanometer chips, a major technical accomplishment.

Beijing’s emphasis on domestic semiconductor production is part of its overall AI strategy. Even if takes time to make better chips, China has worked to develop better software to overcome hardware shortfalls and deploy AI in niche capabilities, such as medical applications and manufacturing, at a larger scale than American competitors.

Chinese authorities, including Premier Li Qiang, have recently emphasized the comparable quality of domestic and export control-compliant Nvidia chips across a range of metrics, signaling a political desire to rely on homegrown alternatives. Chinese firms have also increasingly relied on open-source models to drive innovation, encouraging collaboration among developers and allowing for rapid adoption among a range of industries, including within the People’s Liberation Army.

U.S. Should Strengthen Export Controls on Critical Chip Manufacturing Inputs

The restrictions suggest that Beijing is increasingly willing to accept a less advanced AI ecosystem so long as it remains fully under its control — even if it is to the detriment of its most competitive tech firms, which have struggled to overcome the restrictions imposed by U.S. export controls.

As such, rather than loosening export controls to gain only short-term concessions, as was the case with Nvidia, Washington should prevent Beijing from further building its domestic AI ecosystem by tightening controls on key inputs, such as badly needed design software and advanced lithography machines. Congress should pair these efforts with greater restrictions on outbound investment into China’s tech sector and greater funding for the Bureau of Industry and Security to monitor compliance with current export controls.  

Jack Burnham is a research analyst in the China Program at the Foundation for Defense of Democracies (FDD). For more analysis from Jack and FDD, please subscribe HERE. Follow Jack on X @JackBurnham802. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.