Beijing has launched a regulatory pushback against Nvidia Corporation’s China-specific H20 artificial intelligence processors after U.S. Commerce Secretary Howard Lutnick made remarks about chip exports that senior Chinese officials deemed “insulting,” according to multiple sources familiar with the matter.
Chinese Authorities Issue Informal Guidance Against Nvidia Chips
Chinese regulatory bodies, including the Cyberspace Administration of China (CAC), the National Development and Reform Commission (NDRC), and the Ministry of Industry and Technology, have begun actively discouraging local companies from purchasing Nvidia’s H20 processors. The regulatory action comes as a direct response to comments made by Lutnick during a CNBC interview on July 15, 2025.
Major Chinese technology companies, including ByteDance and Alibaba Group, have reportedly received “window guidance” from authorities instructing them to halt or avoid new H20 orders. This informal regulatory pressure represents a significant escalation in the ongoing U.S.-China technology trade tensions.
The ‘Fourth Best’ Chip Controversy
The current dispute stems from Lutnick’s remarks made just one day after the Trump administration lifted restrictions on AI chip sales to China. During his appearance on CNBC’s “Squawk on the Street,” Lutnick stated that Nvidia was only selling China its “fourth best” chip technology.
“We don’t sell them our best stuff, not our second best stuff, not even our third best,” Lutnick said, referring to the H20 processors specifically designed for the Chinese market to comply with U.S. export controls.
The Commerce Secretary further elaborated on the U.S. strategy, suggesting that the goal was to make Chinese developers dependent on American technology while maintaining technological superiority. “You want to sell the Chinese enough that their developers get addicted to the American technology stack,” Lutnick explained.
Impact on Nvidia’s China Operations
The Chinese regulatory response threatens to undermine Nvidia’s recent return to the Chinese market. The semiconductor giant had previously been restricted from selling advanced AI chips to China under export controls implemented during the Biden administration. When these restrictions were lifted in July 2025, it marked a significant policy reversal that allowed Nvidia to resume H20 sales.
Nvidia had estimated missing out on $2.5 billion in additional revenue from H20 sales to China during the first quarter of 2025, with expectations of another $8 billion revenue loss during the second quarter while the restrictions were in place.
Government and National Security Concerns
The Chinese guidance has been particularly strong against using H20 processors for any government or national security-related work by state enterprises or private companies. Beijing has urged local firms to avoid using the Nvidia chips, especially for government-related purposes, citing security and technological sovereignty concerns.
This development complicates Nvidia’s efforts to rebuild its presence in one of its most important markets. China represents a crucial revenue stream for the chip manufacturer, particularly as global demand for AI processors continues to surge.
Broader Implications for U.S.-China Tech Relations
The dispute highlights the delicate balance in U.S.-China technology trade relations. While the Trump administration’s decision to allow chip sales was seen as a potential thaw in tensions, Lutnick’s public comments about the inferior quality of chips being sold to China have reignited diplomatic friction.
National security experts have also weighed in on the controversy, with some urging Lutnick to maintain export controls on H20 processors due to concerns about China’s potential military applications of the technology.
Industry Response and Future Outlook
Nvidia has responded to the situation by stating that it “evaluates a variety of products” for different markets, though the company has not directly addressed the Chinese regulatory pressure. The chipmaker is reportedly working on a new AI chip for China called the B30A, based on its Blackwell architecture, with sample units potentially available for testing as early as next month.
The current standoff reflects the broader challenges facing technology companies operating in the increasingly complex U.S.-China relationship. As both nations compete for technological supremacy in artificial intelligence and semiconductor manufacturing, companies like Nvidia find themselves caught between competing regulatory frameworks and national security considerations.
The situation continues to evolve, with market observers closely watching whether diplomatic efforts can resolve the current impasse or if the dispute will further fragment the global semiconductor supply chain.
