China Mandates Domestic AI Hardware for New Data Centers Amid Tech Tensions

China is actively implementing measures to reduce its dependence on foreign technology, especially in the crucial artificial intelligence sector. Recent directives mandate that all new state-funded data center initiatives must integrate AI hardware manufactured within China. This policy is a significant escalation from previous guidelines that merely encouraged a majority share of domestic components.

China's Stance on AI Hardware: A Deep Dive into the New Policy

In a significant policy shift, the Chinese government has announced that all state-funded data centers embarking on new projects are now required to exclusively employ artificial intelligence hardware produced domestically. This directive, first reported by Reuters, represents an intensified effort by China to achieve technological self-sufficiency and reduce its reliance on foreign, particularly US-made, components. This latest mandate builds upon earlier instructions from August 2021, which urged data center operators to procure at least half of their chips from domestic manufacturers. The implications are far-reaching: data center projects less than 30% complete are being instructed to replace any foreign-sourced chips already installed. An instance has already emerged where a planned data center in a northwestern province, initially slated to use Nvidia chips, faced suspension before construction began due to this new guidance. However, the application of this rule to more advanced projects, which may retain foreign chips, is being determined on a case-by-case basis.

The policy's full scope—whether it will be a nationwide decree or limited to specific regions—remains unclear. Likewise, the specific regulatory authority within the Chinese government responsible for issuing these orders has not been definitively identified, with both The Cyberspace Administration of China and the National Development and Reform Commission declining to comment. This strategic move from China occurs amidst a broader, intensifying technological competition with the United States. Concurrently, US political figures have expressed strong sentiments regarding advanced AI chip access, with former President Donald Trump stating that no nation other than the United States should possess the most sophisticated AI chips. These developments underscore a deepening divide in global tech supply chains, challenging previous understandings of trade relations, such as a recent one-year trade truce between the US and China. Notably, advanced AI chips like Nvidia's Blackwell series were explicitly excluded from these negotiations. The new Chinese directive also impacts Nvidia's H20 chips, the most powerful AI chips the company is permitted to sell in China, following earlier reports of some Chinese tech firms being banned from acquiring them. Nvidia CEO Jensen Huang has voiced disappointment over these restrictions, acknowledging the broader geopolitical agendas at play while maintaining a stance of patience regarding future market access.

This ongoing technological arms race between major global powers highlights a critical juncture for the future of international trade and innovation. Nations are increasingly prioritizing national security and economic independence, leading to fragmented supply chains and heightened competition. For companies operating in this complex environment, adapting to rapidly evolving regulatory landscapes and geopolitical tensions will be paramount. The long-term implications for global technological collaboration and market dynamics remain to be seen, but the current trajectory suggests a future characterized by greater self-reliance and strategic decoupling in critical technology sectors.