"China Faces AI Chip Shortage Amid U.S. Restrictions; Government Steps In to Oversee Distribution"

On November 12, 2025, the Wall Street Journal (WSJ), citing multiple sources, reported that Chinese authorities are intervening in the distribution of domestically produced AI chips as the country faces a severe shortage of AI chips due to U.S. export restrictions on artificial intelligence (AI) semiconductors.

According to the report, the Chinese government has begun to intervene in how products from SMIC, the country's largest foundry (semiconductor contract manufacturer), are allocated. In particular, the authorities are reportedly working to prioritize the needs of Huawei, China's largest telecommunications equipment company.

Experts have assessed that China is struggling to achieve self-sufficiency in AI chips. Saif Khan, a technology researcher at the Institute for Progress (IFP), a bipartisan U.S. think tank, stated, "Even if you multiply the projected numbers by five, it may still not be enough to meet domestic demand in China."

WSJ also reported that Chinese technology companies are competing to secure a limited supply of domestic AI chips, and some are smuggling high-performance AI chips from the U.S. semiconductor company Nvidia. Based on contracts obtained independently, WSJ noted that more than 16 units of Nvidia’s latest Blackwell rack products were shipped as small components, reassembled in China, and are scheduled for delivery in November.

Meanwhile, as part of its push for "semiconductor self-sufficiency," China reportedly issued a ban in September, instructing domestic technology firms to halt orders for Nvidia's new, China-specific, lower-spec chips. Furthermore, on November 5, it was reported that the government issued a directive requiring only domestically produced AI chips to be used in new data centers funded by state capital.

Amid these developments, some companies are seeking workarounds, such as connecting thousands of chips together. Sources said that such strategies by Chinese firms have significantly increased the power consumption of data centers, prompting several local governments to begin providing subsidies for electricity costs.