[SCMP Column] Why China Said 'No' to Stripped-Down Nvidia Chips

China's Calculus Shifts on Nvidia's Downgraded Chips
Security and Trust Concerns Accelerate Tech Decoupling
China Pursues Self-Sufficiency Backed by Policy and Market Protection

When American semiconductor giant Nvidia unveiled the B40 series, a significantly downgraded version of its H20 chip aimed at the Chinese market, many in Washington and Silicon Valley believed Nvidia had crafted a clever compromise. The United States could maintain its technological edge while ensuring that China continued to rely on American suppliers, and Nvidia could keep generating revenue from one of its largest markets-China.

The logic was simple: it was expected that China would accept "something" rather than get nothing at all. However, China's answer was a firm "no." Chinese authorities reportedly instructed major technology companies to halt purchases of these chips, launched an antitrust investigation into Nvidia, and raised sharp questions about stability and security. What may appear to be a minor technical dispute is, in reality, becoming a turning point in the flow of global technology politics.

For decades, China's technological advancement was built on global supply chains led by American companies. Dependence on American chip software design was tolerated as the price of participating in globalization. After all, every country must, in some way, rely on others. However, the U.S. government's decision to impose comprehensive restrictions on advanced artificial intelligence (AI) chips changed the calculus for China.

By blocking high-end products but allowing lower-performance options like the B40, the United States sought to slow China's progress without causing a complete rupture between the two countries. What was overlooked, however, was that such measures would fundamentally shake the very debate over technological dependence within China.

At one time, Chinese policymakers and entrepreneurs believed reliance on American hardware was inevitable. Building a self-sufficient semiconductor industry seemed an overwhelming task, with experts warning it could take decades, or perhaps more than a generation, to catch up with the United States.

However, the moment the United States cut off access to top-tier technology, the debate in China shifted from "Is self-sufficiency necessary?" to "Self-sufficiency is inevitable." As sanctions increased, calls for "domestic technological innovation" gained momentum, and what once seemed a distant goal quickly became a national imperative.

China's decision to reject Nvidia's "stripped-down" chips thus carries both symbolic and strategic significance. First, it signals China's unwillingness to settle for second-rate products whose performance has been deliberately limited by the United States. Continuing to purchase such chips would mean willingly accepting a "technological inferiority" imposed by America.

Strategically, Chinese alternatives are rapidly catching up to American products. Chinese media emphasize that domestic chips offer at least comparable performance to the stripped-down Nvidia versions. Regardless of the facts, the growing perception that these chips are "good enough" is itself significant. If that is the case, why insist on foreign products, especially those with intentionally limited capabilities?

Trust and security issues cannot be overlooked either. Chinese media have raised suspicions that the stripped-down Nvidia chips may contain "back doors" or security vulnerabilities. There is an underlying fear that the chips could be remotely disabled. While Nvidia has denied these claims, the fundamental question remains: "Is it truly safe to build the future digital infrastructure with components made in a country that openly defines you as a strategic competitor?"

Even if these suspicions are unfounded, the risks persist. In an era of "great power competition," technological dependence is not just an economic issue-it becomes a national security risk. This underpins the U.S. ban on advanced AI chip exports to China, the blacklisting of Huawei, and pressure on ByteDance. The consequences are significant. For Nvidia, immediate revenue losses are a concern. China was one of its largest clients, and even with stripped-down products, the company could have generated billions of dollars in sales. The same holds true for American companies in general. The more often such "compromises" are rejected, the deeper the decoupling of supply chains will become.

Conversely, this presents an opportunity for China to nurture its own industries. Chinese semiconductor companies, which once could not even dream of competing with Nvidia, now benefit from market protection, regulatory support, and political momentum.

Of course, mass-producing chips that can stand shoulder to shoulder with Nvidia's remains a daunting task. Key equipment such as extreme ultraviolet (EUV) lithography machines is still lacking. However, the direction is clear. "Dependence" is now defined as "vulnerability," and overcoming it has become a political and strategic task.

The lesson the United States should draw is that a strategy of managing China through selective sanctions is likely to fail. In fact, sanctions may serve as a catalyst, accelerating China's drive for self-reliance.

China's decision to reject stripped-down chips is about more than just procurement. It signals a fundamental shift in China's technological strategy. China is no longer content to participate in globalization on terms set by others; it is now prepared to bear the costs of forging its own path.

In the short term, the process will be difficult and costly, but in the long run, China will secure a stronger and more autonomous technological base. At the same time, its network with Belt and Road countries adopting Chinese AI will also be strengthened.

The United States sought to keep China dependent on itself. In the end, however, it has become a catalyst for China's independence. This signals the rise of a "parallel AI ecosystem" that the world must now confront.

Zeng Jinghan, Professor of Public and International Affairs, City University of Hong Kong

This article is a translation by The Asia Business Daily of the South China Morning Post (SCMP) column, "Why China said 'no' to stripped-down NVIDIA chips."