HONG KONG (Reuters) -Nvidia ( NVDA ) is seeking a site in Shanghai for a research and development centre, three sources close to the matter said, reflecting the strategic significance of the Chinese market where U.S. curbs on advanced chip exports have hit sales.

The U.S. chipmaker began the search in early 2025 and is primarily evaluating locations in Shanghai's Minhang and Xuhui districts, one of the sources said.

The project gained momentum after a surprise visit to China by Nvidia ( NVDA ) CEO Jensen Huang last month, said two of the sources.

Huang, who has consistently said China is critical to Nvidia's ( NVDA ) growth, made his visit immediately after the U.S. placed new restrictions on China-bound shipments of its H20 chips, the only AI chip the company can sell legally in China.

Huang met senior Chinese officials, including Vice Premier He Lifeng and Shanghai's mayor Gong Zheng.

Reuters reported earlier this month that Nvidia ( NVDA ) plans to release a downgraded version of the H20 chip for China in the next two months, as it seeks to prop up sales in the country, where it has been lost market share to domestic rivals such as Huawei.

China generated $17 billion in revenue for Nvidia ( NVDA ) in the fiscal year ending January 26, accounting for 13% of the company's total sales.

The local government of Shanghai, which hosts China's largest foreign business community, including firms such as Tesla, has expressed willingness to offer incentives for the Nvidia ( NVDA ) project, including tax reductions, said two of the sources.

The local authorities are also considering offering a substantial amount of land to Nvidia ( NVDA ) for its China R&D centre, one source added.

Nvidia ( NVDA ) declined to comment, while the Shanghai city government did not immediately respond to a request for comment. The sources declined to be named, as the plan is not public.

Following his visit to China, Huang told CNBC that the country's AI market could reach approximately $50 billion within the next two-to-three years.

He said that being excluded from this rapidly expanding sector would represent a "tremendous loss" for Nvidia ( NVDA ), especially as competition with Huawei intensifies.

During an earnings call in February, before H20 chip sales to China were restricted, Nvidia ( NVDA ) executives said the company's sales to China were about half the level before U.S. export controls.

Since 2022, the U.S. government has imposed restrictions on the export of Nvidia's ( NVDA ) most advanced chips to China, citing concerns over potential military applications.

The Financial Times first reported on Friday about Nvidia's ( NVDA ) plan to build a R&D centre in China.