Recently, Chinese authorities recommended certain companies to avoid using Nvidia H20 chips due to security concerns. These recommendations may affect future foreign electronics procurement and domestic industry development.
China's Recommendations on Nvidia Chips
In recent weeks, Chinese authorities have sent recommendations to several companies advising against the use of certain semiconductors. Specifically, this guidance targets Nvidia's H20 chips. The focus is on state-owned enterprises and their affiliated private companies strictly avoiding these chips. However, it is important to note that these recommendations are not outright bans, making them less severe. Nonetheless, H20 chips remain in demand across Asia, despite being somewhat outdated.
Security and Export Restrictions
Despite the canceled plans, restrictions were not fully lifted, leading to financial losses for Nvidia in the early quarters of 2025. Licensing for Nvidia H20 and AMD MI308 chips requires companies to pay up to 15% of revenue from Chinese sales to the US Treasury. Meanwhile, Chinese authorities have accused Nvidia of implanting backdoors in H20 chips, allegedly enabling remote tracking and shutdown of equipment. Given these allegations, the recent recommendations to shy away from H20 chips make more sense. Reports indicate that Beijing is pressuring local businesses to replace foreign semiconductors with domestically produced alternatives.
Market Impact and Expert Opinions
Some experts believe that Nvidia and AMD chips will remain in demand despite political and security challenges. Homing Lee, a senior macroeconomic strategist at Lombard Odier, commented for Bloomberg: 'The quality of domestically produced chips is improving significantly, but they may not be as versatile for the specific workloads that China’s AI industry hopes to focus on.' The Financial Times reports that Beijing’s recommendations have already had an impact, with some companies planning to reduce purchases of the H20 chip.
Thus, China's recommendations to avoid Nvidia H20 chips may have a significant impact on the market, reinforcing local companies' desire to develop their semiconductor industry.
