Nvidia AI Chips in High Demand in Chinese Markets Despite US Export Ban

Nvidia AI chips continue to see strong demand in China, even amid strict US restrictions on exporting these advanced technologies. 

Reports indicate that smuggling of these chips into China has become increasingly prevalent, becoming a significant underground industry, particularly in cities like Shenzhen and other eastern regions.

Restrictions and the growing AI chip trade

The United States has imposed export controls on AI chips, such as those made by Nvidia, in response to rising geopolitical tensions with China. The US government aims to limit China’s access to advanced technology that could be used for military purposes. Despite these sanctions, a thriving market for restricted AI technology has emerged in China, enabling the country to circumvent the bans.

Nvidia’s AI chips, which power a wide range of applications from chatbots to autonomous vehicles, are also believed to have contributed to rapid advancements in defence technology. According to reports from The Seattle Times, these chips have fueled US concerns that China might develop advanced weapons and enhance its cyber warfare capabilities, which has led to increased scrutiny and tighter restrictions on exports.

Smuggling routes and evasion tactics

Chinese companies have devised methods to acquire Nvidia chips through indirect channels in response to these restrictions. A report by The Information revealed that an electric appliance company in eastern China successfully ordered 300 servers worth $120 million, each equipped with eight Nvidia H100 chips, despite the US ban. The transaction was facilitated by a broker in Malaysia, who helped the Chinese company establish a shell corporation to conceal its true identity, thereby bypassing US export controls.

This case is just one example of how US-made AI chips are finding their way into China. The smuggling routes involve complex networks and partnerships, allowing Chinese companies to continue accessing the technology despite the restrictions.

AI Chip trade flourishes in Chinese markets

In markets like Shenzhen, the trade in AI chips remains vibrant. Vendors report significant demand for these restricted technologies, with some customers placing large orders for hundreds of chips at a time. According to one vendor, companies regularly order 200 to 300 Nvidia chips, with delivery times as short as two weeks.

Another vendor claimed to have shipped over 2,000 of Nvidia’s most advanced chips from Hong Kong to mainland China, backing his claims with photos and communication records detailing a $103 million transaction. Investigations by The New York Times and the Center for Advanced Defense Studies (C4ADS) have uncovered state procurement documents indicating that several state-affiliated enterprises in China have also purchased restricted chips, leading to scrutiny from US authorities.

Compliance and loopholes in US export controls

While Nvidia and other US companies assert that they comply with all export regulations, there are acknowledgements that some businesses have exploited loopholes to continue supplying the Chinese market. Nvidia spokesperson John Rizzo stated that the company adheres to US export controls and expects its customers to do the same. 

He added that Nvidia would take appropriate action if any customer is found violating these controls, although tracking products after sale poses challenges. Executives from AI companies have argued that these restrictions could harm US interests by giving Chinese competitors an edge. However, US officials maintain that the bans are necessary to protect national security.

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