China blocks Nvidia's AI chips, halting production

Overview

Nvidia’s bid to lock in a crucial Chinese market hit an abrupt snag as Beijing directed major domestic tech firms to pause orders for the company’s H20 AI chips. The development, which followed a series of competing signals from Washington and Beijing, has left hundreds of thousands of H20 processors in limbo and disrupted lines that were already humming to meet Chinese demand.

What happened

• Nvidia designed the H20 as a lighter, export-controlled variant of its higher-end H100 and Blackwell lines, tailored to satisfy the Biden administration’s rules on selling advanced chips to China.
• After an initial round of orders, the U.S. Commerce Department restricted the export of H20 to China, arguing the devices could be diverted for military use. Nvidia wrote down more than $5 billion in unsold inventory as a consequence.
• In July, the Trump-era policy pivot allowed a resumption of sales, but with a controversial requirement: Nvidia and AMD would share 15% of revenue from certain chip sales in China with the U.S. government. Demand in China rebounded enough for Nvidia to order 300,000 additional H20 units through its manufacturing partner, TSMC.

Beijing’s turn

But the momentum stalled when Beijing signaled a new roadblock. Regulators invited and pressed major Chinese tech players — including Tencent, Alibaba, and ByteDance — to suspend H20 purchases, citing national security concerns over potential hidden backdoors or tracking features.

The concerns were amplified by state media and public comments from U.S. officials that China viewed the export landscape through a competitive lens. In one widely cited remark, U.S. Commerce Secretary Howard Lutnick suggested the U.S. tech stack should be “best,” a stance China interpreted as an effort to entrench American dominance. The remarks fed into national debates about technological self-reliance.

As a result, Nvidia’s supply chain was interrupted. The company reportedly instructed key suppliers — including Amkor Technology for packaging and Samsung for memory — to pause activities, while Foxconn’s backend operations were also instructed to halt work. Nvidia’s CEO Jensen Huang has repeatedly denied security claims, stating that the H20 chips contain no backdoors and pose no national security risk.

Market and policy implications

• Nvidia’s reliance on the Chinese market is substantial. At its last fiscal year, China accounted for roughly 13% of revenue, making any disruption in the region consequential for overall results.
• The episode underscores the broader strategy of China’s move toward technological self-sufficiency. Domestic champions like Huawei and Cambricon are gaining traction for AI inference tasks, and several cities have set ambitious targets for self-sufficiency in AI semiconductors by 2027.
• While Chinese firms still lean on Nvidia’s hardware and software ecosystem for complex AI training, political pressure to diversify hardware sources is intensifying.

The two-way street of risk and opportunity

• For Nvidia, the immediate risk is both financial and reputational. Analysts suggest that a full ban on H20 exports could threaten tens of billions in annual revenue if the market remains constrained.
• For China, the situation is a strategic inflection point. The push for domestic silicon isn’t just about one chip; it’s a signal that Beijing wants to reduce exposure to foreign supply chains amid geopolitical tension.

What comes next

• It’s unclear how long the pause on H20 orders will last. If regulators maintain the stance, Nvidia and Chinese customers may need to recalibrate expectations for collaboration in AI computing.
• The broader AI ecosystem could see accelerated investment in domestic alternatives, airport-turned-technologies, and more partnerships within China’s regulatory framework.

Official responses

Nvidia has reiterated that it manages its supply chain to address market conditions and that the H20 is not a military product. The company has also asserted that its devices do not contain backdoors and that it complies with export controls.

Bottom line

The H20 episode is less about a single product and more about how geopolitics is increasingly fought at the level of silicon and software. The standoff highlights both the vulnerability of global supply chains and China’s determination to cultivate domestic capabilities—an agenda that is likely to shape AI hardware choices for years to come.