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China Turns Away From US-Made Chips, Bets on Domestic Semiconductor Industry
In a significant shift in the global semiconductor landscape, China is actively turning away from advanced US-made chips, including Nvidia's H200 processors, in favor of bolstering its own domestic chip production. According to US Commerce Secretary Howard Lutnick, not a single H200 chip approved for export to China has actually been delivered to Chinese companies. The Chinese central government has reportedly instructed its cloud computing firms to prioritize domestic alternatives over American imports, redirecting investments toward homegrown semiconductor champions like SMIC and Moore Threads.
This strategic pivot comes amid escalating US-China tech tensions, where Washington has imposed export restrictions on advanced chips to prevent Beijing from gaining a military and AI advantage. However, the Chinese government's decision to voluntarily forgo even permitted US chip purchases marks a new phase in the semiconductor decoupling between the world's two largest economies.
Why China Is Rejecting Nvidia H200 Chips
US Export Restrictions and Chinese Government Pressure
The United States has maintained strict export controls on advanced semiconductors to China, citing national security concerns. The Trump administration allowed limited exports of Nvidia's H200 chips—which are six times more powerful than previously approved models—but only under tight supervision. US Senator Chris Coons (D-Delaware) expressed concerns during a hearing, asking Lutnick: 'What makes you so certain that chips sold to companies will stay out of the hands of the PLA (Chinese military)?'
Lutnick responded that the concern is moot because China itself is blocking the purchases. 'I understand their cloud companies want to buy these chips. The Chinese central government has not allowed them to because they want to keep investments focused on their own domestic industry,' Lutnick stated. This contradicts Nvidia CEO Jensen Huang's claims that some Chinese companies had placed orders for the H200. However, Lutnick insists no chips have actually been shipped.
The Rise of Chinese Chip Champions
China's semiconductor push is yielding tangible results. Semiconductor Manufacturing International Corporation (SMIC), the country's largest chip foundry, reported a 16% revenue increase in 2025 to a record $9.3 billion. Analysts project SMIC will hit $11 billion in revenue in 2026, driven by domestic demand for AI and consumer electronics chips. SMIC is a key player in China's semiconductor self-sufficiency strategy, which aims to produce 70% of the country's chips domestically by 2025 under the Made in China 2025 initiative.
A smaller but rapidly growing competitor is Moore Threads, often described as China's answer to Nvidia. The company focuses on GPUs for AI and data center applications. Moore Threads went public in late 2025, with its shares surging 400% on the first day of trading. Its 2025 revenue is estimated at approximately 1.5 billion yuan (about $210 million), representing a staggering 240% year-over-year growth. While still a fraction of Nvidia's scale, Moore Threads symbolizes the emergence of a viable domestic AI chip ecosystem.
Impact on the Global Chip Market
Nvidia Faces Uncertainty in China
Nvidia has long relied on China for a significant portion of its revenue. In fiscal 2024, China accounted for about 17% of Nvidia's total revenue. The loss of even permitted sales due to Chinese government directives could pressure Nvidia's growth trajectory, especially as the company faces increasing competition from Chinese chip startups. Nvidia's H200 chip is a high-bandwidth memory GPU designed for AI training and inference, and losing access to Chinese cloud giants like Alibaba, Tencent, and Baidu could impact Nvidia's market dominance.
However, Nvidia's overall demand remains robust. The company's data center revenue reached record levels in 2025, driven by global AI adoption. The China headwind may be partially offset by strong demand from US, European, and other Asian markets.
Global Supply Chain Realignment
The decoupling is reshaping global supply chains. Chinese chip equipment makers are seeing increased orders as domestic fabs ramp up capacity. According to industry data, China has the most new fab construction projects globally, with 8 out of 19 new fabs under construction in 2021 located in China. This trend has accelerated under government subsidies and the China Integrated Circuit Industry Investment Fund (CICF), which pools resources from state investors including the Ministry of Finance and China Mobile.
Meanwhile, US chip equipment companies like Applied Materials and Lam Research face export restrictions that limit their sales to China, potentially costing them billions in lost revenue. The US-China technology war and chip export controls have become a defining feature of bilateral relations, with both sides investing heavily in strategic autonomy.
What This Means for AI Development
China's push for domestic chips could slow its AI development in the short term, as domestic alternatives are generally less powerful than Nvidia's cutting-edge offerings. However, the long-term goal is to build a self-sufficient AI ecosystem. OpenAI CEO Sam Altman recently noted that Chinese tech companies are developing 'amazingly fast,' suggesting the gap may be closing quicker than expected.
Chinese AI startups like DeepSeek have demonstrated that competitive AI models can be trained on less advanced hardware through software optimization. This 'efficiency over brute force' approach could become a hallmark of Chinese AI innovation, potentially reshaping global AI dynamics.
Frequently Asked Questions
Why is China rejecting Nvidia's H200 chips?
China's central government has instructed domestic cloud companies to prioritize domestic chip suppliers over US imports, even when export licenses are granted. This is part of a broader strategy to achieve semiconductor self-sufficiency and reduce reliance on foreign technology.
What is SMIC's role in China's chip industry?
SMIC (Semiconductor Manufacturing International Corporation) is China's largest semiconductor foundry. It reported record revenue of $9.3 billion in 2025 and is expected to reach $11 billion in 2026, driven by domestic demand for AI and consumer electronics chips.
Is Moore Threads a real competitor to Nvidia?
Moore Threads is a Chinese GPU startup focused on AI and data center chips. While still small—2025 revenue estimated at $210 million—it grew 240% year-over-year and saw its stock surge 400% on its IPO day. It represents a growing domestic alternative to Nvidia in China.
How do US export controls affect the chip market?
US export controls restrict the sale of advanced semiconductors and manufacturing equipment to China, aiming to prevent military and AI advancements. However, China's voluntary rejection of even permitted chips is accelerating the decoupling, reshaping global supply chains and boosting China's domestic chip industry.
What is the Made in China 2025 goal for semiconductors?
Made in China 2025 set a target for 70% domestic semiconductor production by 2025. While this goal has not been fully met, significant progress has been made, with domestic firms like SMIC and Moore Threads gaining market share.
Sources
This article is based on reporting by BNR Nieuwsradio, statements from US Commerce Secretary Howard Lutnick, Senator Chris Coons, and Nvidia CEO Jensen Huang, as well as financial data from SMIC and Moore Threads. Additional context from Wikipedia on the semiconductor industry in China and Nvidia.
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