Nvidia's $17B China Sales Face New Green Regulation Risks
1min read China's newly introduced energy efficiency regulations for advanced chips could prevent local companies from purchasing Nvidia's best-selling processors in the country. If strictly enforced, the policy poses a significant threat to Nvidia's $17 billion annual revenue from the Chinese market.
Documents reviewed and analyzed by the Financial Times reveal that China's top economic planning body, the National Development and Reform Commission (NDRC), has recommended that Chinese firms use chips meeting stringent energy requirements when building or expanding data centers. Nvidia's H20, a China-specific version of its chip, currently fails to meet these latest regulatory standards, according to the documents.
Two sources familiar with the matter disclosed that, for months, Chinese regulators have quietly discouraged tech giants such as alibaba, ByteDance, and Tencent from purchasing H20 chips. However, these rules have not been strictly enforced so far, and H20 sales in China remain unaffected. If the NDRC decides to enforce the ban more rigorously, the impact could be substantial.
As China rushes to expand its data center infrastructure, nvidia risks losing orders to domestic competitors like Huawei, whose products align more closely with Beijing's green agenda.
Non-compliance with these regulations could result in on-site inspections and subsequent fines, a scenario most Chinese firms seek to avoid. However, the restrictions apply only to new data centers under construction. Some companies are circumventing the rules by replacing older chips in existing facilities with H20 chips instead.
Ask Aime: How will Nvidia's H20 chips be affected by China's new energy efficiency regulations for advanced chips?
To counter this regulatory threat, Nvidia has devised a contingency plan to modify the H20 chip to meet the NDRC's requirements, according to a source familiar with the matter. However, these technical adjustments would reduce the chip's efficiency, weakening its competitive edge in China. In an effort to ease tensions, Nvidia is seeking a meeting in the coming months between its top executives and NDRC Chairman Zheng Shanjie.
Since the launch of DeepSeek's high-efficiency AI inference model sparked a wave of artificial intelligence enthusiasm in China, major tech firms, including Alibaba and Tencent, have significantly increased their H20 chip orders this year. This surge in demand is also driven by concerns that the U.S. may impose additional restrictions on Nvidia's China sales. Bloomberg reported in January that Washington is considering further curbs, which could include H20 chips.
According to Nvidia's fiscal year 2025 annual report, China is its fourth-largest market, generating $17.1 billion in revenue, accounting for 13% of the company's total sales.
Sources also noted that Intel's HL328 and HL388 chips similarly fail to meet the NDRC's environmental standards. However, given their relatively low sales in China, the potential impact on Intel is expected to be limited.
