In the shadowy world of tech smuggling, a sophisticated underground network is facilitating the illegal flow of Nvidia’s advanced artificial intelligence (AI) chips into China. This clandestine operation is thriving despite stringent U.S. export restrictions aimed at curbing China’s access to these critical components. The story of this network was first reported in the Wall Street Journal.
The Stealthy Courier
Chinese students studying abroad in countries like Singapore, South Korea pack the Nvidia Chips available in these countries while they go on a trip back home. Hidden among their belongings were Nvidia’s high-end AI chips, each roughly the size of a Nintendo Switch game console. These chips were intended for delivery to a contact in China, circumventing U.S. export restrictions. The students are paid $100 per chip.
These students are part of a loosely organized network of couriers, buyers, and sellers who are actively undermining the Biden administration’s restrictions. These restrictions aim to prevent China from acquiring advanced Nvidia chips, which are essential for training AI systems—a critical aspect of the tech competition between the U.S. and China.
A Thriving Black Market
The underground market for Nvidia’s chips is robust, with over 70 distributors openly advertising these restricted items online. The Wall Street Journal verified contacts with 25 of these sellers, many of whom reported having dozens of high-end Nvidia chips available each month. This flow is steady enough that sellers can take preorders and promise delivery within weeks. Some even sell entire servers, each containing multiple Nvidia chips, for upwards of $300,000.
While this black market can’t satisfy the demands of tech giants, it meets the needs of AI startups and research institutions. Every chip is valuable to China, which is determined to keep pace with the U.S. in the AI arms race—a race seen as crucial for tech sovereignty and national security.
The Underground Network of Brokers
Central to this operation are brokers like the enigmatic “Brother Jiang” in Singapore. He taps into distribution channels and system integrators across Southeast Asia to procure Nvidia chips for Chinese customers. His clients range from AI companies and research institutions to chip resellers. They often use entities set up in countries like Singapore, Malaysia, Vietnam, and Taiwan to skirt U.S. restrictions.
Jiang’s network relies on both individual couriers and traditional shipping methods. For instance, in some transactions, incomplete paperwork helps evade detection by authorities. In March, a Shenzhen-based merchant received 20 Nvidia GPUs from Singapore and 40 from Taiwan without specifying the chip models in customs filings. These chips were some of the most restricted: Nvidia’s high-end A100 processors.
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The Enforcement Challenge
Enforcing U.S. export controls on Nvidia’s chips is a complex task. Nvidia doesn’t sell its powerful data-center chips individually but ships them to third parties like Dell Technologies and Super Micro Computer. These companies deliver fully-built AI servers to customers, often ordering more chips than needed to buffer against manufacturing delays. If these end buyers route the servers and chips elsewhere, tracking becomes nearly impossible.
Dell and Super Micro assert their compliance with U.S. export controls and promise action against illicit activities. Nvidia, too, emphasizes its adherence to export restrictions, working with trusted partners to ensure compliance. However, the real enforcement lies with the U.S. Commerce Department and the semiconductor supply chain, a task made difficult by the global and intricate nature of this network.
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The Scale of Smuggling
The precise scale of the black market for Nvidia’s advanced chips is elusive. Estimates suggest a median of 12,500 AI chips are smuggled annually, compared to the over 2.6 million A100 and H100 chips Nvidia sold globally last year. Despite the relatively small scale, each chip is crucial for China’s AI ambitions.
Nvidia’s chips are smuggled through various means, including individual couriers and bulk shipments via logistics arranged by brokers. These transactions often involve incomplete documentation to avoid detection. Distributors in China’s AI hubs like Shenzhen and Beijing openly sell these chips, with prices for the A100 and H100 chips significantly marked up.
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The Persistence of Demand
Despite the tightening of U.S. export restrictions, Chinese research institutes and universities continue to procure Nvidia’s high-end AI chips through underground resellers. Institutions like Tsinghua University and the Chinese Academy of Science have been significant buyers, obtaining chips like the H100 even after official sales were restricted.
Chinese tech companies, including Huawei, are working to develop chips that can rival Nvidia’s, but they face significant technological hurdles. In the meantime, the demand for Nvidia’s advanced AI chips persists, with the underground network adapting to meet this need.
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The Motivations
For many involved in this network, the motivations are both patriotic and financial. They feel that they have done something for their country while they make some quick bucks on these underground trade.
This sentiment reflects the broader challenge in curbing such underground networks. As long as the demand exists and the financial incentives are strong, the smuggling of Nvidia’s chips into China is likely to continue, highlighting the complexities of enforcing export controls in a globalized tech landscape.
These underground networks trading Nvidia chips into China underscores the fierce competition in the AI race between the U.S. and China. Despite stringent restrictions, the demand for these critical components fuels a thriving black market, driven by a combination of national ambition and financial incentives. This story reveals the intricate and persistent efforts to bypass U.S. controls, illustrating the ongoing challenges in the global tech war.
