China Cuts Data Center Energy Costs By 50% With Major Subsidies To Boost Domestic Chip Industry: Report

China has boosted subsidies for major data centers, slashing their energy bills by up to 50% to support domestic chipmakers and strengthen global competitiveness, according to a report.

Chinese Tech Giants Grapple With High Energy Costs

Several local governments in provinces with a high concentration of data centers, such as Gansu, Guizhou, and Inner Mongolia, have introduced these incentives, the Financial Times reported on Tuesday.

These cater to tech behemoths like ByteDance, Alibaba Group Holding Ltd. (NYSE:BABA), and Tencent Holdings Ltd. (OTC:TCEHY) as these firms have been dealing with soaring electricity costs due to Beijing’s prohibition on buying AI chips from Nvidia Corporation (NASDAQ:NVDA).

Industry insiders revealed that the subsidies were introduced after tech firms raised concerns over the higher costs of using less efficient domestic chips from Huawei and Cambricon, according to the report.

Despite the higher energy costs tied to domestic chip production, China's centralized power grid continues to provide electricity that is both cheaper and cleaner than in the U.S., with no signs of shortage, the FT reported. As a result, energy-abundant remote provinces have emerged as key hubs for data center clusters.

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China Sidesteps Curbs, Pushes AI Self-Reliance

China’s move is part of a long-term strategy to cut reliance on foreign chipmakers. A top government adviser warned that the Xi Jinping-led nation should abandon the accelerators popularized by Nvidia and instead focus on developing domestic chips for artificial intelligence.

In October, a Congress report revealed that China had reportedly managed to bypass U.S. export controls and purchase about $38 billion worth of sophisticated chipmaking equipment from the U.S. and its allies due to gaps in efforts to curb manufacturing.

Adding to these developments, Alibaba introduced a new computing pooling system called Aegaeon, which dramatically reduced the reliance on Nvidia GPUs by 82% for AI models.  

Nvidia’s China Woes

The increased subsidies come in the wake of President Donald Trump‘s declaration that Nvidia's advanced Blackwell AI chip will not be available for "other people," as a strategic move to keep the technology out of China’s reach.

However, Nvidia CEO Jensen Huang stated that China already has a strong semiconductor ecosystem and that collaboration benefits both nations. He described China as an irreplaceable and "dynamic market."

Despite the ban, CNBC commentator Jim Cramer argued that the policy still leaves Nvidia with “a lot of latitude” to operate in China, emphasizing that Trump has not “banned Nvidia from China.”

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.