Way back last month, when reports suggested Beijing “discouraged” Chinese firms from using the lower-end AI chips Nvidia designed specifically for the local market, I noted that normally, “guidance from the Party’s tantamount to a decree.”

I illustrated that point with a sarcastic query: “Would you want to be the firm which does something Xi ‘urged’ against?”

Usually that’d be a rhetorical question, but on this point, I went on to note, “the distinction between discouraging the use of Nvidia chips and banning them isn’t without a difference.”

Xi regards AI development as an existential imperative, and if pursuing the new technology means letting local firms use whatever outdated chips Donald Trump lets Jensen Huang sell into the Chinese market, so be it. At least until China’s adept enough at chip manufacturing to produce processors domestically.

Fast forward five weeks and China outright banned the RTX6000, another Nvidia chip aimed at complying with US restrictions on sales of higher-end AI technology to America’s strategic adversary in Beijing.

According to the FT, Xi’s Cyberspace Administration — a key enforcer during the infamous CCP crackdown on the country’s tech sector — instructed several firms, including Alibaba and TikTok parent ByteDance, to stop testing the RTX Pro 6000D and cancel orders which might’ve otherwise numbered in the “tens of thousands.”

The linked FT linked piece noted that the decree “goes beyond” the above-mentioned H20 guidance and was motivated by a determination that “domestic chips [have] attained performance comparable” to that on offer from the two chips Nvidia’s allowed to sell in China.

If true, that nods to the risk of a strategy which revolves around denying to a country something it feels like it needs and which it might otherwise buy from you: That country will simply double down on its efforts to produce domestically, eroding your competitive advantage.

The news comes just days after Beijing accused Nvidia of violating China’s anti-monopoly laws, and appears to suggest Huang was right to assume, in Nvidia’s most recent financial guidance, no material sales into the Chinese market, export license or not.

Meanwhile, local tech shares continued to rally, building on gains which have by now pushed up the marquee gauge of big-cap Chinese tech companies by nearly 45% from the “Liberation Day” lows.

Wednesday’s 4.2% advance brought the monthly gain to almost 12%. This would be the fifth consecutive monthly advance for the index, which nevertheless remains 42% lower than its pre-crackdown highs reached in February of 2021.

As the figure shows, this’ll be the seventh straight weekly gain and the 10th in 11.

Alibaba, which scored its best session in years earlier this month on AI optimism, is now up — get this — 40% just since last month.

Again, this is an argument against restricting chip sales to China and for a strategy that lets the technology flow with a mind towards keeping the Chinese “addicted” to US tech.

I don’t personally agree with that strategy — I think wittingly arming Xi with the best Nvidia chips would be a blunder of potentially catastrophic proportions — but I can certainly see the appeal on days like Wednesday.

Speaking to reporters in London about the apparent CCP ban on Nvidia technology, Huang said, “We can only be in service of a market if the country wants us to be.”