China's Concerns Over Nvidia H20 Chips: Security, Market, and Supply Challenges

Chinese Security Concerns and Nvidia's Recall

Security Concerns: China has raised security concerns regarding Nvidia H20 chips, prompting it to summon the company for clarification. This move came in response to proposed US legislation aiming to include tracking systems in exported chips, which raised concerns in Beijing about data sovereignty and user privacy violations.

"Backdoor" Risks: The Cyberspace Administration of China (CAC) officially summoned Nvidia to discuss what it described as "backdoor" risks in H20 chips, fearing they might contain critical security vulnerabilities and "tracking and positioning" or "remote shutdown" technologies. These concerns, as reported by multiple sources, are a direct response to the proposed US Chip Security Act, which aims to prevent advanced chips from being used in unauthorized destinations. For its part, Nvidia strongly denied the existence of any security vulnerabilities, affirming that cybersecurity is a top priority and that it does not embed any "backdoors" in its hardware.

Impact of Investigations on Nvidia's Market in China

Strained Relationship: These investigations further complicate Nvidia's already strained relationship with the Chinese market, which is its second-largest. Despite these tensions, demand for the H20 chip remains strong in China, with the company ordering 300,000 units from TSMC. This high demand reflects the chip's importance to developers, research institutes, and universities in China, which rely on high-performance AI chips to accelerate their local technological development.

Mellanox Acquisition: Additionally, the Chinese regulatory body is investigating Nvidia's acquisition of Mellanox Technologies, an Israeli company specializing in chip design, due to allegations of violating certain conditional approval terms from 2020.

Supply Chain Challenges and AI Leadership

Uncertainty: The uncertainty surrounding the supply chain, potential import restrictions, or any changes in licensing rules could ultimately affect the availability and cost of hardware in the market.

Technological Confrontation: As the technological confrontation between the United States and China intensifies, Nvidia's global leadership in AI hardware is no longer guaranteed without competition.