Beijing’s energy rules threaten Nvidia H20 chip sales in China

Beijing has introduced energy efficiency rules for the use of advanced chips that, if strictly enforced, would prevent Chinese companies from buying Nvidia’s best-selling processors in the country.

According to documents reviewed and analyzed by the Financial Times, China’s top economic planner, the National Development and Reform Commission (NDRC), is advising Chinese groups to use chips meeting strict requirements in new data centers and expansions of existing facilities.

The documents indicate that Nvidia’s H20 chip—less powerful than its top-tier graphics processing units but tailored for Washington’s export controls—currently fails to meet the commission’s new rules.

Two people familiar with the matter told the Financial Times that the Chinese regulator has quietly discouraged the country’s tech giants, including Alibaba, ByteDance, and Tencent, from purchasing H20 chips for several months.

They added that the rules are not strictly enforced and have not yet impacted sales of H20 chips in China, which continue to experience strong demand.

However, stricter enforcement by the commission could threaten Nvidia’s $17 billion annual business in the country.

As China accelerates data center construction, the US chipmaker risks losing orders to domestic rivals like Huawei, whose offerings better align with Beijing’s green agenda.

Nvidia is attempting to arrange a meeting between its senior executives and commission chair Zheng Shanjie in the coming months to ease tensions, according to a person familiar with the plans.

These restrictions, introduced by the NDRC last year but not previously reported, emerge amid rising US-China trade tensions as both nations compete to develop advanced artificial intelligence.

Beijing is encouraging local companies to reduce their dependence on products from foreign groups like Nvidia, whose graphics processing units are crucial for developing AI models.

Because these restrictions apply only to data centers under construction, some companies are attempting to circumvent them by replacing older chips in existing facilities with H20s, according to people familiar with the matter.

One source noted that non-compliance could trigger on-site inspections and subsequent fines, an outcome most Chinese companies are keen to avoid.

To address this challenge, Nvidia has prepared adjustments for its H20 chips to meet NDRC requirements. However, these technical changes would likely reduce the chip’s efficiency and harm its competitiveness in the Chinese market.

The commission’s stance sends a tense signal regarding Beijing’s position towards US chip giant Nvidia amidst the high-stakes technological competition between Washington and Beijing.

The H20 chip, Nvidia’s flagship product in China, was approved for sale after the US tightened export controls in October 2023.

Tech giants from Alibaba to Tencent aggressively increased H20 chip orders this year following the launch of DeepSeek’s efficient reasoning model, which spurred an AI boom in the country, according to a person familiar with the matter.

This surge in orders coincided with expectations of further restrictions on Nvidia’s chip sales to China. Bloomberg reported in January that Washington was exploring additional restrictions potentially covering the H20 chip.

Meanwhile, China’s State Administration for Market Regulation reportedly launched an antitrust investigation in December, probing whether Nvidia withheld chip sales from Chinese customers even before the US export ban took effect in late 2022.

According to Nvidia’s fiscal year 2025 annual report, China represents Nvidia’s fourth-largest market, generating $17.1 billion in revenue and accounting for 13% of its total sales.

Nvidia stated, “Our products deliver leading energy efficiency and value in every market we serve,” adding, “As technology rapidly advances, export control policy should be adjusted to allow US firms to offer the most energy-efficient products possible while also enabling the Administration to achieve its national security goals.”