WASHINGTON, Jan 13 (Reuters) - The Trump administration on Tuesday gave a formal green light to China-bound sales of Nvidia's second most powerful AI chips, putting in place a rule that will likely kickstart shipments of the H200 despite deep concerns among China hawks in Washington.

According to the regulations, the chips will be reviewed by a third-party testing lab to confirm their technical AI capabilities before they can be shipped to China, which cannot receive more than 50% of the total amount of chips sold to American customers.

Nvidia will need to certify there are enough H200s in the U.S., while Chinese customers must demonstrate "sufficient security procedures" and cannot use the chips for military purposes. Those conditions had not been established previously.

Nvidia and the Chinese embassy in Washington did not immediately respond to requests for comment.

U.S. President Donald Trump announced last month that he would allow the chip sales in exchange for a 25% fee for the U.S. government. The decision drew fire from China hawks across the U.S. political spectrum over concerns the chips would supercharge Beijing's military and erode the U.S. advantage in artificial intelligence.

Jay Goldberg, an equities analyst with Seaport Research, said the caps on exports appeared to be a compromise that put some restrictions on Nvidia's China sales but might be difficult to enforce.

"As we have seen, (Chinese) companies have found ways to get access to those chips, and the U.S. government appears highly transactional in their approach to chip exports," Goldberg said. "Put another way, this looks like a Band-Aid, a temporary attempt to cover the huge gap among the U.S. government’s export policy makers."

CHINESE H200 ORDERS TOP 2 MILLION

Chinese technology companies have placed orders for more than 2 million H200 chips that are priced at around $27,000 each, Reuters reported last month, exceeding Nvidia's inventory of 700,000 of the chips.

At the Consumer Electronics Show last week in Las Vegas, Nvidia CEO Jensen Huang said the company was ramping up production of H200 chips amid strong demand both from China and the rest of the world that was driving up the price to rent the H200 chips currently sitting in cloud computing data centers.

Saif Khan, who served as director of technology and national security on the White House National Security Council under former President Joe Biden, said the rule would substantially boost China's AI capabilities.

"The rule would allow about two million advanced AI chips like the H200 to China, an amount equal to the compute owned today by a typical U.S. frontier AI company," Khan said. "The Administration will also face challenges enforcing the rule's know-your-customer requirements that restrict Chinese cloud providers from supporting nefarious uses."

Such concerns had prompted the Biden administration to bar sales of advanced AI chips to China. But the Trump administration, led by White House AI czar David Sacks, argues that shipping advanced AI chips to China discourages Chinese competitors - such as heavily sanctioned Huawei - from redoubling efforts to catch up with Nvidia's and AMD's most advanced chip designs.

When Trump announced the sales last month, he said they would be exported to China "under conditions that allow for continued strong National Security."

But questions have arisen around whether the administration would in practice impose any limits on the chip shipments, or even if Beijing would allow their sales domestically.

Reuters reported last month that the U.S. had launched a review that could result in the first shipments of the chips to China.