Nvidia H20 chip Photo: VCG

Nvidia and AMD have reportedly agreed to share a portion of their sales revenue from China of certain chips as part of an unusual arrangement with the US administration in order to obtain export licenses to the Chinese market, the Financial Times (FT) reported on Monday. 

A Chinese expert said this approach aims to serve only Washington's own interests, which not only undermines the core principles of free trade, but also unbalances the traditional relationship between government and business. 

This arrangement is considered "unprecedented," as export control experts have never seen US companies agree to pay a portion of their income to secure export licenses, according to the FT report. According to sources including a US official, Nvidia has agreed to share 15 percent of its revenue from sales of its H20 chips in China, with AMD doing the same for its MI308 chips.

AMD did not respond to a request for comment. Nvidia did not deny that it had agreed to the arrangement. It said: "We follow rules the US government sets for our participation in worldwide markets," the FT reported.

Asked to comment on reports that Nvidia and AMD have agreed to give the US government 15 percent of their revenues from chip sales in China, under an arrangement to obtain export licenses for the semiconductors, Lin Jian, a spokesperson form the Chinese Foreign Ministry, said on Monday that China has made its position clear more than once on the US export of chips to China.

In a separate question about US export controls on high-bandwidth memory (HBM) chips, Lin said that "China's position on opposing the politicization and weaponization of tech and trade issues, and on malicious blockade and suppression against China, is consistent and clear. Such practices disrupt the stability of global industrial and supply chains and are in no one's interests."

Washington initially barred chip sales to China in the name of so-called "national security", but according to the FT report it will now pocket 15 percent of sales revenues on Nvidia and AMD's China shipments. If the report is confirmed, it shows the US ban has quietly morphed into a tollbooth: pay up and you may pass, Ma Jihua, a veteran telecom industry observer, told the Global Times on Monday.

This approach means that the US is now pressuring US chip makers to secure export licenses to China through economic leverage. It can be seen that the US permits these exports solely to serve its own interests, Ma said.

This tactic not only undermines the core principles of free trade, but also unbalances the traditional relationship between government and business, the expert said. 

The H20 chip was developed by Nvidia specifically for the Chinese market following strict export controls imposed by the Biden administration on more advanced chips used in AI. The company's resumption of its H20 shipments reversed a previous ban on H20 sales that was placed in April by the Trump administration.

Nvidia's H20 computing chip was recently revealed to have serious security issues, prompting the Cyberspace Administration of China to summon the company.

The People's Daily commentary department on August 1 published on its WeChat and Sina Weibo accounts an article titled "Nvidia, how can I trust you?". The article reiterated that "we must never allow 'defective' chips to enter service."

The revenue deal has sparked concerns among some US officials and experts.  Lisa Tobin, a former China expert who served on the National Security Council in the first Trump administration, criticized the decision, suggesting that it turns export licenses into a source of income for Washington and questioning what might come next, according to the FT report on Monday.

The unusual agreement between the chipmakers and the US government underscores the delicate balance between maintaining technological advantages, adhering to export controls, and accessing the lucrative Chinese market, Ma said, adding that it remains to be seen how this rare step will impact the broader US-China tech collaboration and global semiconductor industry dynamics. 

Irreplaceable importance of Chinese market

While the US continues to seek to maintain its technological edge through restrictions, China's market and innovation capabilities remain a powerful force that cannot be overlooked. For American tech companies, navigating this landscape requires striking a delicate balance between compliance with US government's rules or policies and seizing the opportunities presented by China's vast and growing market, according to Xiang Ligang, a Chinese telecom industry expert.

The US imposition of export restrictions on high-tech products to China puts American tech companies in a dilemma. On one hand, they face limitations; on the other, they cannot ignore the immense importance and attractiveness of the Chinese market, Xiang told the Global Times on Monday.

The unusual 15 percent arrangement highlights the significance of the Chinese market for US chip manufacturers, said Ma, adding that China's semiconductor market is poised for further growth, driven by sustained market demand, ongoing technological innovation, supportive policies and enhancements in domestic capacity. These factors present abundant opportunities for foreign enterprises seeking to engage with this dynamic market.

Even under the shadow of the US export restrictions, Nvidia founder and CEO Jensen Huang visited China for a third time in July. Huang announced that the company had obtained US approval to resume exporting H20 chips to Chinese customers. The company will begin shipments soon, Huang said.

"The Chinese market is massive, dynamic, and highly innovative, and it's also home to many AI researchers," Huang said, according to China Central Television (CCTV). "Therefore, it is indeed crucial for American companies to establish roots in the Chinese market."

Although policy uncertainty continues, Nvidia's moves underscored the company's eagerness to maintain its market share in China amid US government restrictions and rising competition, and indicated the irreplaceability of the China market to Nvidia, Xiang said.

Nvidia said in April that sales restrictions on its chip in China on national security grounds would cost the company $5.5 billion, according to an AP report.

Whether or not Nvidia's market share in China slips, the fact remains that the China market provides tremendous opportunities for the company and holds an important position in its market strategy, laying a solid foundation for its global performance, Xiang said.

Xiang also noted that Washington's restrictions on high-tech exports, including advanced chips, are causing significant losses for US companies, while simultaneously accelerating breakthrough innovations in China's technology sector.

The semiconductor market in China has grown significantly. China has remained the largest semiconductor market globally in recent years, accounting for nearly 30 percent of the world's total, Xinhua News Agency reported.