This time, the joy has been short-lived for Nvidia. As we reported on July 15, the company led by Jensen Huang successfully persuaded the U.S. Department of Commerce to review its regulations regarding the sale of the H20 GPU for artificial intelligence (AI) in China. “The U.S. government has assured us that licenses will be granted. We hope to start deliveries soon,” Nvidia stated in an official announcement.
The H20 chip is critical for Nvidia, as it has reopened the doors to the lucrative Chinese market. The initial reception from Chinese companies has been overwhelmingly positive, even though the H20 chip offers capabilities that are clearly lower than Nvidia’s other products. The reason the U.S. Department of Commerce allowed its sale in China is that this integrated circuit meets the imposed restrictions. Despite its limitations, sales in China have seen a remarkable 50% growth quarter-over-quarter since it entered the market in mid-2024.
The Administration of Cyberspace in China is Investigating Nvidia
However, this optimistic scenario has turned problematic for Nvidia. The overwhelming reception of the H20 GPU has led to a supply shortage, forcing the company to place orders for the production of 300,000 units with TSMC, according to Reuters. This is a welcome problem, but it doesn’t end there. Nvidia’s engineers are also working on a new GPU, featuring the advanced Blackwell Microarchitecture, which is intended to eventually replace the H20 chip in the Chinese market.
Cyberspace Administration is China’s primary Internet regulatory body.
Despite these challenges, things are not going entirely smoothly for Nvidia. The Cyberspace Administration of China (CAC) has initiated a thorough investigation into the H20 GPU. As the main regulatory body for the Internet in China, CAC is responsible for overseeing technology companies, enforcing the Data Security Law, and ensuring compliance with the Personal Information Protection Law.
This isn’t the first time the CAC has scrutinized a Western company. On March 31, 2023, it launched an investigation into Micron Technology, the largest American memory chip manufacturer. In the current situation, the CAC’s attention is focused on Nvidia due to suspicions that the H20 chip may contain a backdoor that could be exploited by Chinese experts. If this were the case, it could severely compromise national security.
For now, the CAC has restricted itself to questioning Nvidia’s representatives in China, asking them to prove that the H20 chip does not pose a threat to the interests and security of the country led by Xi Jinping. While further details have yet to emerge, it is expected that Nvidia will take all measures necessary to safeguard its position in the Chinese market, particularly given that China accounted for approximately 13% of the company’s revenue in the last fiscal year, amounting to around 17 billion dollars.
Image | Nvidia
For more information, you can refer to articles on this subject from Nikkei Asia and the South China Morning Post.
In conclusion, as Nvidia navigates this complicated landscape, the stakes are high. The company’s ability to address these regulatory concerns, meet the demands of the Chinese market, and innovate with new products will determine its long-term viability in this crucial region.