China Approves New AI Hardware Suppliers, Excludes Nvidia

China has begun to compile a list of government-approved AI hardware suppliers, which currently includes Cambricon and Huawei, while notably excluding foreign companies such as Nvidia and AMD, as reported by the Financial Times and Tom's Hardware.

This initiative is part of a broader strategy to promote locally developed artificial intelligence processors within the public sector, effectively prioritizing domestic suppliers. The new list expands the Information Technology Innovation List, aimed at encouraging the adoption of homegrown technology in government contracts, which historically represents a substantial portion of spending in China.

The Ministry of Industry and Information Technology has not commented on these updated procurement rules, but the clear aim is to accelerate the displacement of U.S.-designed AI accelerators with local alternatives.

This shift poses challenges, as Nvidia's technology is still integral to many public sector workloads due to its high performance and established CUDA ecosystem, complicating the transition to alternative solutions from Cambricon or Huawei.

Furthermore, while the Chinese government may restrict the use of American technology, companies like Alibaba and Tencent continue to rely on Nvidia's hardware in their cloud operations, navigating U.S. sanctions.

To incentivize the use of domestic AI hardware, the Chinese government has introduced energy subsidies, offering a 50% discount on electricity for data centers utilizing Chinese-made AI accelerators. The ability of domestic manufacturers to meet the demands of the burgeoning AI sector remains uncertain, particularly given the current capacity constraints at SMIC, the only Chinese company capable of producing competitive chips, which is operating at nearly full capacity and facing challenges in acquiring advanced manufacturing tools due to U.S. sanctions.

Future developments, such as Huawei's plans to build a domestic fabrication facility, could potentially enhance China's semiconductor capabilities, though timelines remain unclear.