Do not be fooled by Beijing’s icy response to the US’ policy reversal that would allow a key Nvidia Corp artificial intelligence (AI) chip back in China.
China’s AI ambitions currently rely on Nvidia’s hardware, and authorities know that — even if they would not admit it. However, by fanning fears of alleged security or environmental concerns, Chinese authorities are buying time for Huawei Technologies Co (華為) to catch up while keeping trade talks pressure on the US.
Nvidia CEO Jensen Huang (黃仁勳) was greeted with fanfare by industry leaders in Beijing last month after news broke that US President Donald Trump’s administration would allow the sale of H20 chips to resume. It seemed like China got what it wanted: Loosening export controls designed to hold back its AI sector has been a key sticking point during tariff negotiations.
Yet in the weeks since the announcement, cyberauthorities have summoned Nvidia to discuss alleged security risks related to the H20 chip; state media warned of potential backdoors that could cause a “nightmare”; and the government urged local companies to avoid using the much sought-after processors for AI development.
When asked about Beijing’s unexpected reaction, US Secretary of the Treasury Scott Bessent told Bloomberg TV that it “tells me that they are worried about the Nvidia chips becoming the standard in China.” This is an optimistic and simplistic take. It is too soon for Washington to be celebrating over this feigned angst.
Nvidia’s tech stack is already, overwhelmingly, the standard in the nation’s AI sector. There is a reason that giants from Bytedance Ltd to Alibaba Group Holding Ltd stockpiled billions of US dollars’ worth of orders ahead of the now-reversed ban. (Similarly, it seems a deliberate move that, despite all the talk of lurking threats, China has not issued an outright ban itself.) While these warnings have drawn a lot of attention, they likely would not be enough to deter companies eager to power their AI ambitions to stop buying H20s.
While a Chinese Communist Party mouthpiece did appear to blast alleged “backdoors” in these chips, and many Western news outlets ran with that headline, the reality is more nuanced.
The made-to-go viral editorial in a People’s Daily WeChat account was far from an official rebuke, according to an analysis from the China Media Project. Instead, it was meant to make Nvidia “squirm.” It worked. The Santa Clara-based chipmaker responded with a public denial of breaches and argued that adding any in the future would be “an open invitation for disaster.”
It is true, as I have written before, that Beijing would very much prefer its AI industry to use offerings from Huawei instead of Nvidia. However, the domestic alternatives are not ready for primetime — both in terms of performance and the quantity that can be produced.
Domestic AI champion DeepSeek was forced to delay the release of its new model because it was trying to train it on Huawei’s hardware instead of Nvidia’s, the Financial Times reported last week. However, even with a team of Huawei engineers onsite, they could not get it to work.
In an apparent compromise, DeepSeek is using Nvidia for training the model and Huawei for inference (the phase that involves running and deploying AI). It would be foolish for regulators to arrest DeepSeek’s momentum by not allowing it to use any US computing power at all.
The most unusual aspect of this is still Trump’s announcement that Nvidia would pay the US 15 percent of its revenue for AI chip sales in China. It is not hard to imagine the global backlash if such a pay-for-play deal had been set up by the other side, but it also reiterates Trump’s transactional approach to these national security concerns. This is not lost in Beijing, especially at a time when the tariff truce has been further extended.
Beijing might be putting on a show that it does not want US chips, but it is really just building a bridge now until the domestic alternatives are ready. There are signs that this moment is approaching: Companies such as buzzy start-up iFlytek claim to have trained their models entirely with Huawei processers.
Still, most Chinese businesses much prefer Nvidia’s, in large part because of its supporting software system. Encouraging developers to build on top of Huawei’s rival platform over time is what would help improve it enough to eventually force a broader ecosystem shift.
When this turning point is reached, US-led export controls would lose much of their power. For Washington, a 15 percent cut seems like an extremely low price to help smooth over this transition for China.
Catherine Thorbecke is a Bloomberg Opinion columnist covering Asia tech. Previously, she was a tech reporter at CNN and ABC News. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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