In a surprising turnaround in the US longstanding technology restrictions on China, President Donald Trump last month allowed Nvidia to resume sales of major AI chips specifically designed for the Chinese market.
But rather than celebrating, Beijing's response was notably lukewarm, despite long urging Washington to facilitate strict export restrictions. A few weeks after the policy U-turn, Beijing called the chip a security risk and summoned nvidia for explanation, discouraging the company from using it.
The unwelcome sentiment reflects Beijing's willingness to build a self-sufficient semiconductor supply chain. And that confidence in the progress that the rapidly advancing chip industry has made.
But the cold shoulder could also represent some political stances. Despite significant advances in the semiconductor sector, China still needs American chips and technology. Experts said China's national champion Huawei has developed the chip with performance that rivals and sometimes outperforms the newly approved Nvidia chip. However, China still wants more sophisticated AI processors that remain blocked under US export control.
Since Trump first imposed technology restrictions on Huaway during his first term, China's chip technology has fueled the frustration Washington has built up on export controls, said Xiang Ligang, missionary advisor to the Ministry of Industry and Information Technology.
“We have this ability, not as they imagined. If China is stopped, it's either not working, or it won't be able to end,” he said.
For him, his facial policy only reflects the importance of having a completely homemade chip supply chain.
“For Chinese companies, there may only be options if they want to ensure a relatively safe supply of chips. That means they rely on chips produced in our own domestically,” Xiang said.
That may be China's goal, but in the high-stakes AI race, the US remains a leader, at least for now, with all national security implications.
The chip focus is NVIDIA's H20, which maintained access to the Chinese market following strict export controls released last year by the AI chip leader and implemented under the Biden administration, which halted exports of highly throughput chips.
Last month, Trump made chip sales shine for sale to China after banning it in April as friction with the US deepened.
Trump justified his decision by calling the chip “outdated” because he is behind the H20-derived state-of-the-art AI processors such as the Blackwell and the H100. He and his officials appeared to accept the view that has been long promoted by Nvidia CEO Jensen Huang. This means that high-tech leadership can only be maintained through the continued existence of chips as a global standard.
“You want to sell China to the point where developers get hooked on the American technology stack,” Commerce Secretary Howard Lutnick said last month.
However, the dramatic reversal prompted questions about Trump's approach to trading to national security, once considered a ban on negotiations.
Meanwhile, China is surprised by the alleged security risks of Nvidia's H20, including the “tracking and positioning” and “remote shutdown” capabilities, as well as the capabilities that some US lawmakers have called for, but Nvidia denies that it was put in the chip.
China's Cyberspace Watchdog and the Ministry of Industry have since summoned the American chip giant on security concerns, urging businesses to avoid the H20 chip, a development previously reported by Bloomberg.
One of the Chinese tech companies that developed the AI model received notifications from authorities that urged them to be careful about their use of the H20 and advised them not to purchase, an insider said on condition of anonymity.
CNN contacted the Ministry and Cyberspace authorities for comment.
An Nvidia spokesperson told CNN that Nvidia “has a 'backdoor' in our chips and gives anyone a remote way to access or control them.”
“Prohibiting the sale of H20 in China will only harm US economic and technological leadership with zero national security benefits,” the spokesman added.
However, China believes the US is not playing quite a bit, Xiang said.
“What we actually want, you refuse to sell us. For what you think is already outdated, you still want to throw them into our markets and occupy our markets. Do you really think we are so naive?” he said.
Despite concerns in Beijing and slowing performance in the H20, chips are highly sought after by Chinese companies.
Stock research firm Bernstein estimated that shipments of chip cargo to China this year would reach 1.5 million units, or about 23 billion, without Trump's export restrictions. Key buyers include Chinese tech giants such as Baitedan, Alibaba and Tencent, by Tiktok owners.
Huawei's top AI chips have superior computing power, one of the key measurements in assessing processor performance compared to the H20, but lacks memory bandwidth, determining which data can be moved between the chip's memory and the computing unit.
Its bandwidth relies on a technology known as high-bandwidth memory (HBM) used by AI chips to ensure efficient data transmission through AI model training.
China's top HBM manufacturer CXMT, or Changxin Memory Technologies, is still about three to four years behind industry leaders such as SK Hynix, Samsung and American Micron in Korea, and American Micron, according to Ms Hwang, research director at research firm CounterPoint Research.
Last year, the Biden administration further strengthened China's export controls, including restrictions on HBM sales, forcing Chinese companies to rely on existing stockpiles.
Beijing has requested Washington to lift restrictions on HBM as part of negotiations on trade deals, the Financial Times reported this week.
The H20's main attraction towards Chinese companies is also lies in the limited capacity of Huawei's production capacity and Nvidia's well-established ecosystem, said Qing Yuan Lin, senior analyst at Bernstein, who focused on the Chinese semiconductor industry.
“Even if you want to completely replace H20 demand with locals, they can't deliver the amount of tip they need,” he said.
The supply bottleneck is attributed to constraints in expanding both the manufacturing of AI chip computing units and the integration of various components within it, technology known as industry advanced packaging.
Bernstein estimated that Huawei's advanced AI chip cargo would reach around 700,000 units in 2025, but domestic demand was still much lower.
CNN reached out to Huawei for comment.
Meanwhile, Nvidia's powerful ecosystem, which integrates chips with software platforms, is difficult and expensive to create what experts call “moats,” and train models with software to switch to alternatives.
“The H20 comes with a complete ecosystem covering both hardware and software support, improving integration compatibility and ease.” “The maturation of this ecosystem remains a challenge for many China-developed chips, making the H20 more attractive despite the cost disadvantages.”
Still, experts said that rapid advances in China's semiconductor technology should not be underestimated. Years of export control have injected both urgency and opportunity into Beijing's push for self-sufficiency, Lin said.
Chipmaking technology appeared to stall after Huawei's 2023 flagship smartphone introduced advanced chips that American officials deemed extremely difficult to produce, but domestic chipmaking equipment companies are steadily gaining positions.
“Locals had little opportunity to gain share from global players due to the technology gap, but export controls created markets that had not existed before, accelerating domestic replacements,” he said.
Bernstein predicts that the proportion of homemade AI chips in China will skyrocket from 17% in 2023 to 55%, while American suppliers such as NVIDIA and AMD will shrink from 83% to 45%.
In April, Nvidia's Huang met with Trump in Washington, urging the administration to loosen its chip export controls and stated that the spread of American AI technology around the world should be accelerated.
“There's no doubt that Huawei is one of the most frightening tech companies in the world. They've made great strides over the past few years,” he said.
“China is right behind us. We are very close.”
