It is rumored that China is investigating the use of Broadcom switches in state-owned data centers with the intention of supporting the local AI supply chain.

The Financial Times reported that Chinese authorities are investigating the use of US-based Broadcom switches in state-owned data centers in an effort to support local suppliers and reduce reliance on foreign artificial intelligence (AI) equipment.

China's State-owned Assets Supervision and Administration Commission (SASAC) has launched an investigation in recent weeks into the number of Broadcom switches used by state-owned data centers, two people familiar with the matter said. High-end switches used in data centers can transmit large amounts of data at extremely high speeds.

One source said the State-owned Assets Supervision and Administration Commission's investigation was aimed at supporting the "national use of domestic chips" movement, which is to promote the Chinese public sector to increase the use of domestic semiconductors and AI products.

Another person familiar with the matter said that the survey found that the penetration rate of Broadcom switches among state-owned enterprises was as high as 90%. He added that this preliminary finding may prompt the State-owned Assets Supervision and Administration Commission to issue informal guidelines to reduce the use of Broadcom switches in state-owned data centers.

The report pointed out that Chinese companies’ rising demand for AI training means that data center switches have become a booming market, creating billions of dollars in business opportunities for local suppliers.

New York-listed Broadcom, Huida and Huawei all sell high-end switches in China. Sources say that although state-backed data centers have banned Huida products, these facilities still contain a significant number of Broadcom switches.

China's State-owned Assets Supervision and Administration Commission is investigating whether Broadcom is using its market leadership position to bundle other products or enforce requirements to purchase tens of thousands of switches in bulk.

Broadcom's alleged sales tactics will make it difficult for Chinese companies such as H3C and Ruijie Networks to place orders with other switch manufacturers such as Huawei.

H3C and Ruijie Networks are preferred suppliers on the procurement guide lists of Chinese government agencies, public institutions and state-owned enterprises, which spend billions of dollars every year purchasing information technology products.