The Underground Network Sneaking Nvidia Chips Into China

🌈 Abstract

The article discusses the underground network that is funneling Nvidia's advanced AI chips, which are restricted from export to China, into the country. It covers how Chinese buyers, sellers, and couriers are bypassing the Biden administration's export restrictions, the scale of this informal market, and the challenges in enforcing the restrictions.

🙋 Q&A

[01] The Underground Network

1. What is the scale of the informal market for Nvidia's advanced AI chips in China?

• The precise scale of the informal market couldn't be learned, but it is believed to be relatively small compared to the overall market. One estimate put the median number of AI chips smuggled annually at 12,500, while Nvidia sold worldwide last year an estimated more than 2.6 million A100 and H100 chips, along with their scaled-down versions.

2. How are the chips being transported into China?

• Chinese buyers are using various methods to get the chips, including individual couriers like a 26-year-old Chinese student who brought 6 Nvidia chips in his luggage, as well as more traditional delivery methods arranged by brokers like "Brother Jiang" in Singapore.

3. What are some of the tactics used to avoid detection?

• Incomplete paperwork that can avoid triggering authorities, and routing the servers (and the Nvidia chips inside them) to elsewhere to limit visibility.

4. Who are the main buyers of the restricted Nvidia chips in China?

• Chinese research institutes and universities, including elite institutions like Tsinghua University and the Chinese Academy of Science, have been among the main buyers of Nvidia's advanced AI chips from resellers in China.

[02] Enforcement Challenges

1. What are the challenges in enforcing the U.S. export restrictions on Nvidia chips?

• Enforcement largely rests with the Commerce Department and the companies in the semiconductor supply chain. Many foreign governments and jurisdictions aren't legally required to impose the U.S. controls, and such chip sales to China aren't generally considered a criminal offense in those places.

2. How are the distributors and sellers operating openly despite the restrictions?

• The distributors are openly advertising the restricted Nvidia chips online, and many have bricks-and-mortar outlets in China's leading AI-research hubs. They are able to obtain regular shipments of the chips, sometimes dozens at a time, through various channels.

3. What are some of the temporary solutions Chinese companies are considering to survive the U.S. restrictions?

• Chinese companies are looking at temporary solutions that can help them until local chip makers like Huawei are capable of making better alternatives.