Nvidia AI chip smuggling into China has become rampant as demand remains firm amid US restrictions on exporting US AI chips into China. The smuggling has become so rife that it has now reportedly become an industry on its own in some Chinese cities like Shenzhen and some eastern parts of China.
This comes as the US has tried to control the exportation of these chips into the Asian country as geopolitical tension intensifies. Despite the sanctions, there is now an active and vibrant trade of restricted AI tech, which is helping China evade the bans.
<h3 id="nvidia-ai-chips-find-their-way-through-the-backdoor">Nvidia AI chips find their way through the backdoor</h3>
These chips are innovations that power chatbots, medical research, and self-driving vehicles. According to the Seattle Times, they have also led to some rapid advances in defense tech, which has ignited US fears that China may develop cutting-edge weapons, launch cyberattacks, and become swift at decision-making on the battlefield.
Reviews of previously unreported university studies, according to <a href="https://www.seattletimes.com/business/with-smugglers-and-front-companies-china-is-skirting-u-s-ai-bans/" rel="noopener noreferrer nofollow" target="_blank">The Seattle Times</a>, citing an investigation by the New York Times claim that Nvidia chips and other US-made technology have helped Chinese research into nuclear weapons and other military applications. This has fueled the restrictions.
However, the private sector in China has found ways to skirt US-imposed restrictions.
According to <a href="https://www.theinformation.com/articles/nvidia-ai-chip-smuggling-to-china-becomes-an-industry" rel="noopener noreferrer nofollow" target="_blank">The Information</a>, an electric appliance company in eastern China ordered 300 servers worth $120 million that are powered by eight of Nvidia’s H100 chips. This order was for chips that the US restricted from selling in China, forcing the company to place this order via a chip broker in Malaysia.
The broker helped the Chinese company to establish a shell company in Malaysia, successfully concealing any links with the Chinese parent company.
This is one of the many ways that the US chips are finding their way to Chinese home ground.
<h3 id="trading-in-ai-chips-becomes-vibrant-in-chinese-markets">Trading in AI chips becomes vibrant in Chinese markets</h3>
Trading of AI chips is vibrant in Shenzhen markets as vendors offer the most sought-after tech, which the US is trying to keep away from China.
One of the vendors revealed that companies came to the market to order as much as 200 to 300 chips from him while another concurred adding he could order the chips for delivery within two weeks.
Another vendor revealed he recently shipped a batch of servers with more than 2,000 of the most advanced Nvidia chips from Hong Kong to mainland China. According to the New York Times article, the vendor backed his claims with photos and messages with a supplier arranging for a $103 million delivery.
State procurement documents uncovered by The New York Times and the Center for Advanced Defense Studies (C4ADS) show that some state-affiliated enterprises (more than a dozen) also purchased the restricted chips. As a result, US authorities flagged some of the entities for helping the Chinese military.
<h3 id="us-firms-say-they-abide-by-the-rules">US firms say they abide by the rules</h3>
While US officials have claimed that American companies generally abide by the rules, they also acknowledged that others have found loopholes, for instance, using overseas subsidiaries or rerouting business through partnerships.
Nvidia and other US firms say they observe the laws around the restrictions, adding there is no evidence to suggest that Nvidia’s banned chips on Chinese markets come from the company directly.
<blockquote>
 “We comply with all US export controls and expect our customers to do the same.” Nvidia spokesperson John Rizzo.
</blockquote>
“Although we cannot track products after they are sold, if we determine that any customer is violating US export controls, we will take appropriate action,” added Rizzo.
Some executives of AI companies have argued that the restrictions on AI tech exports to China will do more harm than good by giving Chinese competitors an edge.
However, US authorities have defended the bans, describing them as necessary.

Nvidia AI chips make brisk business in Chinese markets despite US ban

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