After Nvidia share falls to zero in China, company closing ‘back door’ to keep its AI chips out of Chinese companies

Nvidia has reportedly launched a crackdown on its supply chain, cutting off more than half of its approved customers across Asia. According to a report by The Financial Times, the move is part of a strict new “white list” system designed to close legal loopholes and stop its powerful AI chips from being smuggled into China. The report says that over the past few months, the chipmaker has intensified its compliance checks in key Asian hubs, including Singapore, Malaysia and Japan. Citing sources close to the matter, the report says that the renewed vetting process immediately disqualified more than 50% of Nvidia’s existing customer base in the region. Many of the blacklisted buyers are “neocloud” providers, which are specialised cloud platforms that rent out computing power specifically for heavy AI workloads.The crackdown comes amid pressure from Washington, which has been frustrated by intermediaries and third-party brokers setting up a black market to bypass US technology bans.

How Nvidia is ‘checking’ illegal purchase of its AI chips

Nvidia’s new strategy is an escalation from its standard paperwork checks. To ensure buyers are legitimate, Nvidia staff are now physically visiting customers’ data centres, verifying corporate contracts and directly interviewing end-users. The US Department of Commerce is also directly involved, providing oversight and political muscle to the operation.The smuggling problem was highlighted in March, when US prosecutors charged a co-founder and multiple employees of server manufacturer Supermicro. The defendants allegedly used a Southeast Asian company as a “pass-through entity” to smuggle $2.5 billion worth of chips from Taiwan into China.

Desperation in China as Nvidia chip share drops to zero

Nvidia’s market share for its top-tier processors has effectively been zero in China due to years of US export bans. Compounding the issue, Beijing has blocked Nvidia from selling even its downgraded, lower-tier chips, like the H200, which is at least two generations behind Nvidia’s latest tech, in a fierce political push to force local companies to buy domestic Chinese hardware.However, this pressure has triggered a severe shortage of AI computing power inside China. Chinese technology companies are currently expanding into advanced “AI agents,” which require more computing power than standard chatbots.The report said that some Chinese tech firms are actively lobbying Beijing to lift the ban on Nvidia’s H200 chips. Meanwhile, Beijing is betting that domestic chip factories can triple their production capacity by the end of the year.