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Domestic companies in China are now required to obtain half of their semiconductors from local manufacturers, as Beijing continues its push to reduce dependence on foreign chip suppliers.

Chinese authorities are now requiring data centers to utilize 50% domestically produced silicon.

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China Imposes New Rules: Domestic Companies Must Obtain Half of Their Chip Supplies from Local...
China Imposes New Rules: Domestic Companies Must Obtain Half of Their Chip Supplies from Local Producers - Beijing Cracking Down on Firms Relying on Overseas Semiconductor Supplies

Domestic companies in China are now required to obtain half of their semiconductors from local manufacturers, as Beijing continues its push to reduce dependence on foreign chip suppliers.

In recent months, the process of selling chips to China has become turbulent, with reports suggesting that China is discouraging the use of products like Nvidia's H20. This move hints at potential security concerns and a shift towards locally produced chips.

The Chinese government has mandated that all domestic data centers use more Chinese-produced processors. This mandate, an extension of guidelines initially published last March by the Shanghai municipality, affects publicly-owned Chinese datacenter firms, requiring them to source more than 50% of their chips from domestic producers.

China's push for self-sufficiency in chip supply is driven by on-again, off-again trade blockades and concerns over tracking hardware built into graphics cards. Major US companies like Nvidia and AMD have faced federal hurdles selling their latest chips to Chinese firms, leading to smuggling of chips in the past.

Chinese-produced chips are said to be capable enough for AI inference but not as capable as the latest Nvidia and AMD GPUs for training. This could severely limit Chinese innovation in the AI field, as the domestically produced GPUs will not be able to leverage the CUDA ecosystem, which is powerful and near-ubiquitous with Nvidia chips.

The Chinese government has shown concerns about the use of products like Nvidia's H20, hinting at potential security issues. Companies involved in building expanded data centers in China, such as Alibaba Cloud, the IT backbone of Alibaba Group, are actively expanding their data center infrastructure and aiming for increased self-sufficiency in chip supply.

However, the use of domestically produced chips may slow down Chinese AI innovation, as reported by DeepSeek R2, which has reportedly run into delays after being trained on Huawei chips instead of Nvidia hardware, at the behest of Beijing. Limited access to the latest designs of Nvidia and AMD GPUs could further exacerbate this issue.

The US government currently takes a 15% cut of any proceeds from sales of the latest chips by US companies to China. The Chinese government's mandate extends to publicly-owned Chinese datacenter firms, requiring them to source more than 50% of their chips from domestic producers. This could potentially impact the revenue streams of US chip manufacturers.

In conclusion, China's push for domestic chip production is a response to trade tensions and security concerns. However, the implications of this shift could have significant effects on both the Chinese and global AI landscape.

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