China Mandates Domestic AI Chips in State-Funded Data Centers

The Chinese government has issued new directives requiring all data center projects receiving state funding to exclusively use domestically-made artificial intelligence (AI) chips. This is according to sources familiar with the guidance.

In recent weeks, Chinese regulatory authorities have begun enforcing the mandate. Data centers that are less than 30% complete have been ordered to either remove any installed foreign chips or cancel any outstanding purchase orders for them. Projects that are further along in development will be reviewed on a case-by-case basis.

Aggressive Move for Tech Self-Sufficiency

This directive represents one of China’s most assertive actions to date. The goal is to eliminate foreign technology from its critical infrastructure and accelerate its push for AI chip self-sufficiency. The move comes even amid a temporary pause in trade friction between Beijing and Washington.

Access to advanced AI chips has long been a primary point of contention with the U.S. Both nations are locked in a struggle for dominance in high-end computing power and artificial intelligence. U.S.

President Donald Trump recently commented that Washington would “let them deal with Nvidia but not in terms of the most advanced” chips.

The latest guidance, however, will likely extinguish the hopes of foreign chipmakers. This includes firms like Nvidia, AMD, and Intel. The directive will eliminate a significant portion of their potential revenue from state-backed projects.

Conversely, the policy provides a massive opportunity for local rivals, including Huawei Technologies, to secure market share.

Implementation and Suspended Projects

It remains unclear whether this guidance applies nationwide or is limited to certain provinces. However, the scope of state funding in this sector is vast. AI data center projects in China have received over $100 billion in state funding since 2021. Most data centers have received some form of government support for their construction.

The directive is already having immediate consequences. One source confirmed that a facility in a northwestern province that had planned to deploy foreign chips has been put on hold.

Beijing has long been resistant to U.S. export controls aimed at slowing its technological progress. The U.S. justifies its restrictions by citing concerns that the Chinese military could use the advanced chips to enhance its capabilities.

Boost for Local Rivals, But Risks Remain

The new directive directly carves out market share for China’s domestic chip industry. Local firms like Huawei, Cambricon, and various startups now have a protected market to grow.

The products offered by these Chinese companies already rival some foreign chips in raw performance. However, domestic chipmakers have struggled to penetrate the market. This is because developers remain highly dependent on the robust software ecosystem developed by companies like Nvidia.

While the measure is designed to boost sales for local chip developers, it also risks widening the technological gap with the U.S.

U.S. tech giants continue to secure massive quantities of the most advanced chips, while Chinese manufacturers face supply constraints due to U.S. sanctions on semiconductor manufacturing equipment.

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