China urges firms to avoid Nvidia H20 chips amid security concerns and push for domestic semiconductors

Chinese authorities have issued recommendations to local firms advising against the use of Nvidia’s H20 chips, citing security concerns and a broader push to bolster domestic semiconductor capabilities. The guidance, primarily directed at state-owned enterprises and their affiliated private companies, is not a ban but a formal suggestion to limit or avoid the adoption of these foreign-made AI chips [1]. Despite the advisory nature of the directive, its impact has already begun to be felt, with some companies reportedly planning to reduce their purchases of the H20 [2].

The H20 is currently the most advanced Nvidia chip approved for sale in China under U.S. export restrictions. However, the Trump administration’s policy, which permits limited sales of lower-end AI chips to China, includes a financial condition that requires companies like Nvidia and AMD to pay up to 15% of the revenue from Chinese sales to the U.S. Treasury [3]. This arrangement, introduced in early 2025, has been criticized for its legal ambiguity and transactional nature, yet it has kept the H20 available in the Chinese market.

Chinese regulators have also raised concerns about potential backdoors in the H20, alleging that these chips could be remotely tracked or even shut down. While Nvidia has denied such risks, the reports have contributed to the regulatory unease surrounding the product. In recent weeks, officials have reportedly summoned Nvidia representatives to address these concerns, signaling a deeper scrutiny of foreign technology in sensitive sectors [2].

The move is part of a strategic effort to reduce China’s dependence on foreign semiconductors. State authorities have encouraged companies to consider domestic alternatives and have, in some cases, directly questioned why firms continue to rely on foreign chips. This shift is not without challenges, as domestically produced alternatives, though improving, may not yet match the versatility of foreign counterparts for specific AI workloads [2].

Market experts suggest that while the push for domestic alternatives is gaining momentum, the H20 and similar chips from competitors like AMD will likely remain in demand, especially in non-governmental sectors. However, the dual pressures of U.S. export controls and Beijing’s strategic emphasis on self-reliance are creating a complex operating environment for companies in the AI hardware space [3].

Sources:

[1] https://www.reuters.com/world/china/china-urges-local-firms-not-use-nvidias-h20-chips-bloomberg-news-reports-2025-08-12/

[2] https://www.gulf-times.com/article/708825/business/china-urges-firms-to-avoid-nvidia-h20-chips-after-trump-resumes-sales

[3] https://voice.lapaas.com/china-urges-firms-not-to-use-nvidia-h20-chips/