China has taken a significant policy step by requiring data centers across the country to source more than 50% of their computing chips from domestic manufacturers. The directive, initially introduced in Shanghai in March last year, has now become a national policy spearheaded by agencies like the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT)
What This Mandate Means
- Scope of Application: All public and private data centers, especially those handling government or enterprise workloads, must comply.
- Purpose: Reduce dependency on foreign chip imports (e.g., Nvidia, Intel), bolster domestic semiconductor firms, and reinforce digital sovereignty.
- Strategic Alignment: This move aligns with China’s broader industrial goals, including targets from the Made in China 2025 initiative and its successor policies, aiming for increased domestic chip content and self-reliance
Policy Context and Rationale
1. National Self-Reliance in Semiconductors
China previously set a target under “Made in China 2025” to achieve 70% domestic chip usage by 2025, up from 40% in 2020. Although progress has been uneven, the goal remains central to national policy
2. Existing Requirements for Public Sector
Public sector data centers already operate under requirements for high domestic content:
The “Made in China 2025” rules specify 70% local content in government workloads. Domestic CPUs such as Feiteng and Kunpeng are already widely used in these systems Mordor Intelligence.
3. Massive Investments in Local Chips
China continues ramping up funding for domestic chip development. For example, the “Big Fund” has committed over $47.5 billion this year to uplift local semiconductor manufacturing and infrastructure
Impact on the Semiconductor Landscape
| Area | Impact |
|---|---|
| Domestic Demand | Guaranteed demand for local manufacturers such as Huawei, SMIC, Biren, Feiteng, and others. |
| Foreign Vendors | Companies like Nvidia, Intel, and AMD face restricted opportunities unless used minimally. |
| Technology Ecosystems | Push for local software stacks, processors, and compatibility with AI frameworks. |
| Strategic Alignment | Synchronizes with geopolitically driven tech independence strategies. |
Chinese tech giants, including Baidu, Alibaba, and Tencent, have already begun convening AI clusters using domestic chips like Huawei’s Ascend series—a shift accelerated by export restrictions and the national mandate
Broader Tech Self-Sufficiency Drive
AI & Data Center Redesign
China’s policy dovetails with other initiatives—such as its “East Data, West Compute” strategy and investments exceeding $6 billion in new data centers—aimed at building robust AI infrastructure
Accelerating Domestic Alternatives
Efforts to develop competitive AI chips are underway. Huawei’s Ascend series and other domestic options are gaining traction, though hurdles like compatibility with Nvidia’s CUDA ecosystem and performance disparities remain
Structural Strengthening
Consolidation efforts in semiconductor manufacturing and rising state-backed funds continue to support the vertical integration of the industry—for both design and fabrication
Conclusion
China’s mandate for data centers to source at least 50% of chips domestically represents a decisive escalation in its tech self-reliance strategy. This policy move not only reinforces the domestic chip ecosystem but also signals deepening tech decoupling from Western semiconductors. As global pressures mount, China’s homegrown semiconductor capacity will likely become a critical lever in its industrial and geopolitical future.
