Beijing’s subtle squeeze on foreign AI hardware could reshape the chipmarket and not in Nvidia or AMD’s favor.The Great Chinese Chip NudgeBeijing has decided Nvidia’s H20 AI processors are better left on theshelf, certainly if you’re working on anything that even smells like governmentor national security. Over the past few weeks, Chinese regulators have beenleaning on companies from Alibabato ByteDance to explain why they are ordering these American-made Artificial Intelligence (AI) chipswhen Huawei and other local players are hungry for business.Exclusive: China urges companies to avoid using Nvidia's H20 chips, complicating the chipmaker’s bid to recoup billions in lost revenue https://t.co/JP2c6h6OBV— Bloomberg (@business) August 12, 2025The Ministry of Industry and Information Technology (MIIT) and theCyberspace Administration of China (CAC) have sent notices and held meetingswith some of the country’s biggest tech names, pressing them to justify H20purchases and, in some cases, suggesting that scaling back orders might bepolitically prudent. As one Chinese data center operator put it, buying NvidiaH20 chips “is not banned but has kind of become a politically incorrect thingto dO.Security Concerns, Real or ImaginedOfficially, China’s reasoning is twofold. First, there are securityworries. State media and regulators have hinted, without proof, that Nvidiachips might be able to track their location or be remotely shut down. Nvidiahas denied these claims outright, saying there are no “backdoors” in itsproducts. Regulators are not taking the company’s word for it and have summonedNvidia representatives to discuss the risks.WATCH: Chinese authorities have urged local companies to avoid using Nvidia's H20 artificial intelligence chips, particularly for government-related purposes, a media report said, citing people familiar with the matter https://t.co/4cazCYqRg8 pic.twitter.com/zSkCikwcsJ— Reuters Business (@ReutersBiz) August 12, 2025Second, there is the matter of data. Chinese officials have reportedlybristled at the information Nvidia asks its customers to submit for USgovernment review, fearingit could include sensitive client data. Nvidia says the H20 is not amilitary product and is not used for government infrastructure.Buy Local or …?The other driver here is far simpler. Beijing wants more yuan spent ondomestic silicon. China has been investing heavily in homegrown AI chipmakerssuch as Huawei and Cambricon, even if sanctions on advanced chipmaking gearhave slowed production. The idea is to create a captive market large enough toabsorb whatever local suppliers can produce.That policy is already having ripple effects. Shares in Chinese chipdesigner Cambricon surged 20 percent on the guidance news, and SemiconductorManufacturing International Corp (SMIC), China’s top contract chipmaker, jumped5 percent on hopes for rising demand. It is a clear signal that thegovernment’s nudges are not just about security but also about industrialpolicy in action.Why This Hurts Nvidia and AMDFor Nvidia, this is a headache layered on top of another headache. Thecompany only just resumed selling the H20 in China after agreeingto give the US government 15 percent of the revenue from those sales. Nowit faces a market where customers are under political pressure to avoid itsproduct.Nvidia’s H20, designed specifically for China after earlier USrestrictions, was already a compromise. It is less powerful than the company’stop-tier Blackwell chips but still capable enough to be useful in the AIinference stage. If Chinese firms cut back on orders, Nvidia’s share of China’sAI chip market, which Bernstein predicts will fall to 55 percent this year from66 percent in 2024, could shrink even further.US Tech is seriously compromised with backdoorsThe Fool’s Dilemma: NVIDIA, the H20 Chip, and a Backdoor Too FarSo NVIDIA is called in to explain to the Chinese government - and prove - that there’s no backdoor in the H20 chips it’s preparing to dump on the Chinese market.… pic.twitter.com/ohQJ9ellxx— America-China Watcher (@PandemicTruther) August 3, 2025It is not just Nvidia in the spotlight. Bloomberg reports that it’sunclear if Beijing’s guidance mentions AMD’s MI308 chip directly, but it seemsas if the writing is on the wall. Foreign chips are not the preferred option.The Bigger PictureA stronger Chinese AI chip sector is bad news for both Nvidia and AMD.If local players can meet demand for government and state-linked projects,foreign firms lose their foothold in what is still the world’s largest techmarket. That means fewer sales, less influence and more room for domesticchampions to grow into global competitors.Even if domestic chips are not yet as versatile for every workload,they are improving quickly. Once Chinese firms get used to building AI systemsaround local hardware, they will have little reason to look back across thePacific.For now, the focus is on Nvidia’s H20. AMD should not get toocomfortable. It’s on Beijing’s list too, whether spelled out in black and whiteor implied with a knowing nod.For more stories of technology and finance, visit our Trending pages.This article was written by Louis Parks at www.financemagnates.com.