FT: China incentivizes data centers to switch to domestic chips with cheaper electricity

China has introduced subsidies that will cut energy bills by up to half for some of the country’s largest data centers. The subsidies apply only to data centers using domestic artificial intelligence (AI) chips, not foreign chips such as those made by Nvidia. The move aims to support the domestic chip industry. Reported today by the Financial Times (FT), citing people familiar with the matter.

Local governments have increased incentives to help Chinese tech giants such as ByteDance, Alibaba and Tencent, which have been hit by higher electricity costs following Beijing’s ban on buying AI chips from Nvidia. The subsidies come after several tech companies complained to regulators about the higher costs of using domestic chips from companies such as Huawei and Cambricon, most of which are less energy-efficient than Nvidia’s chips, the newspaper reported.

The move is another example of how China is encouraging its tech companies to reduce their reliance on Nvidia and strengthen the domestic semiconductor industry, enabling the country to compete more effectively with the US in the AI race, the FT said. Experts estimate that the electricity needed to produce the same amount of computing power using the current generation of Chinese chips is about 30 to 50 percent higher than for Nvidia’s H20 chip.

China now offers cheaper and greener electricity than the United States. Local governments also offer electricity subsidies and other incentives to attract the largest projects. According to sources, some are enough to cover the operating costs of a data center for about a year. The new subsidy will bring the price of industrial electricity down to 5.6 US cents (CZK 1.2) per kilowatt-hour (kWh). In the US, the average cost of industrial electricity is 9.1 cents per kWh, according to the government’s Energy Information Administration.