China pushing to ban foreign chips from being used for AI inference, but need NVIDIA for now

China is reportedly pushing for the ban of foreign chips made by any company -- namely NVIDIA -- for use in inferencing, which accounts for the most AI demand, according to new reports.

In an article from the well-trusted outlet the Financial Times, it's being reported that according to someone who was "recently summoned" to meet with Beijing policymakers in China are pushing for a ban on foreign-made chips used for AI inferencing, but it won't happen any time soon.

There is a major shortage of domestic AI chip supplies in China, but Beijing hopes to "significantly improve" that in 2026 with multiple advanced production lines coming online. China's foreign ministry said: "As a matter of principle, science, technology, and economic and trade issues should not be politicized, instrumentalized, or weaponized. Containment and suppression will not hold back China's development".

The Trump administration and US Commerce Secretary Howard Lutnick is currently mulling equity stakes in big overseas technology and semiconductor companies like TSMC, Samsung, SK hynix, and more, so appropriate countermoves are happening in China as a reaction to these changes. The US government also just took a 10% stake in US-based chipmaker Intel, with hopes to see it return to form in the semiconductor industry on American soil.

Some of the comments that Lutnick made at the White House recently have ruffled some feathers in China, with the Financial Times reporting from people with "knowledge of the regulatory action" that the Cyberspace Administration of China (CAC), the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) "moved in response to comments made by Lutnick last month".

Lutnick told CNBC during a July 15 interview: "we don't sell them our best stuff, not our second-best stuff, not even our third-best. You want to sell the Chinese enough that their developers get addicted to the American technology stack, that's the thinking".

The FT reports that some of China's senior leaders found the comments "insulting", something that saw policymakers in Beijing look for ways to restrict Chinese technology companies from buying the AI chips, according to two people with knowledge of the latest regulatory decision-making.

As a result of this, it's reported that Chinese tech giants have "held off" or "significantly downsized" their H20 orders, according to FT's two sources that have knowledge of the plans.