China has reportedly ordered companies to buy local chips to reduce their reliance on Nvidia

Beijing has reportedly ordered Chinese companies to buy local artificial intelligence chips and reduce purchases of products from US chipmaker Nvidia in response to possible US sanctions.

Citing unnamed sources, Bloomberg reported on Saturday that Chinese regulators have been discouraging Chinese companies from buying Nvidia H20 chips used to develop and run artificial intelligence models.

However, because Beijing does not want to hinder the development of domestic AI start-ups and to avoid aggravating tensions with the United States, the policy is currently in the form of guidance rather than a blanket ban.

The measure by Beijing is aimed at helping Chinese AI chipmakers capture a larger market share while allowing local tech firms to prepare for additional restrictions that could be introduced by the United States, the sources said.

Nvidia, one of the world's major chipmakers, was banned by Washington in 2022 from selling its most advanced AI processors to China, though Nvidia modified subsequent versions of its chips to meet U.S. Commerce Department regulations. The H20 series chips meet this standard and can be sold to China.

Sources also said that a number of Chinese regulatory authorities, including the Ministry of Industry and Information Technology, have issued non-mandatory window guidance in recent months, asking companies to reduce the use of Nvidia chips and encouraging them to purchase chips from Chinese companies such as Cambrian and Huawei. Beijing is also sending such signals through some business groups.

On the other hand, Nvidia founder Jen-Hsun Huang said Friday that he would do his best to serve Chinese customers and comply with the U.S. government's restrictions.

"We first have to comply with any policies and regulations that have been put in place," Huang said in an interview with Bloomberg Television. In the meantime, we will do our best to compete in the markets we serve."

Nvidia, the world's most valuable chipmaker, has seen its sales soar in recent years. Although deeply affected by the US-China technology war, the Chinese market is still an important source of sales growth for Nvidia.

In the quarter ending in July, 12% of Nvidia's revenue came from China (including Hong Kong), which amounted to $3.7 billion, up more than 30% from a year earlier.