Since the U.S. government banned Nvidia from exporting high-end chips to China in 2022, Chinese buyers have been circumventing the export controls by sourcing Nvidia’s advanced artificial intelligence (AI) chips through underground networks and smuggling channels from overseas.
According to a report by The Wall Street Journal on Tuesday (July 2), an overseas underground network composed of buyers, sellers, and couriers has been evading the U.S. government’s restrictions on Nvidia chips, providing Nvidia’s high-end chips to research institutions like Tsinghua University and the Chinese Academy of Sciences, as well as technology companies in China.
Currently, there are at least over seventy distributors openly advertising the sale of Nvidia chips online, with The Wall Street Journal contacting 25 of these distributors directly. After verification, many sellers stated that they supply tens of Nvidia high-end chips per month.
The investigation by The Wall Street Journal found that the underground supply of Nvidia chips is fairly stable, with most sellers accepting orders and promising delivery within a few weeks. Some vendors even sell whole servers, with each typically containing 8 Nvidia high-end chips, priced at around $300,000.
While the quantities of Nvidia processors being sold by the vendors are limited, they are sufficient for some low-demand AI startups or research institutions.
According to an analysis by the Center for a New American Security, the median estimate for the annual smuggling of AI chips is 12,500.
The report points out that Nvidia does not directly sell single high-performance data center chips to AI customers worldwide but instead sells the chips to third parties like Dell Technologies and Super Micro Computer, who then deliver fully assembled AI servers or systems to customers.
Industry insiders noted that these equipment vendors often over-purchase Nvidia chips to avoid unexpected surges in demand or manufacturing difficulties. They mentioned that if the final buyer arranges to send the server and included Nvidia chips elsewhere, the equipment vendors have no control over that.
Dell and Super Micro stated that they comply with U.S. export controls and take action upon discovering any illegal activities.
Nvidia stated that it primarily partners with reputable collaborators to comply with U.S. export controls. A spokesperson mentioned, “We apply the same standards to all transactions, regardless of size, and hope our partners would do the same.”
The enforcement of export restrictions on Nvidia chips by the Biden administration largely depends on the Department of Commerce and companies in the semiconductor supply chain. International trade lawyers noted that foreign governments and jurisdictions are not required to implement U.S. control measures from a legal standpoint and would not consider selling such chips to China as a criminal act.
The Wall Street Journal interviewed a chip broker from Singapore who has connections with chip distribution channels and system integrators in Southeast Asia, assisting Chinese clients in obtaining chips and servers.
The broker mentioned that his clients include AI companies, research institutions, and chip agents, some of whom utilize entities set up in Singapore, Malaysia, Vietnam, and Taiwan to circumvent U.S. chip restrictions.
Upon placing orders, he arranges logistics for buyers, ensuring products are delivered to the destination by specialists, prepares customs clearance documents, and liaises with transport companies.
Some sellers mentioned that this system depends on incomplete customs clearance documents to avoid attracting the attention of government authorities. In two transactions in March, a merchant in Shenzhen, China received 20 Nvidia GPUs from Singapore and 40 from an exporter in Taiwan without specifying the chip models.
Sellers indicated that these chips are high-end A100 processors from Nvidia, one of the most tightly restricted chips.
The Wall Street Journal also uncovered many chip distributors setting up physical stores in major AI research centers in Shenzhen and Beijing, among others in China. A typical A100 chip sells for $22,500, while an H100 chip sells for $32,400, significantly higher compared to normal prices of $10,000 and $25,000 for these two chips, respectively. Sellers mentioned that due to the supply becoming more stable, underground market prices have dropped by over half since last summer.
When asked about how to acquire chips, a dealer in Beijing remarked, “It has indeed become more difficult, but don’t worry, there’s always a way.” He added that in recent months, he receives a batch of goods every month, each containing dozens of chips.
Some sellers offer a three-year quality guarantee plan, including defective product replacement and fault repairs, albeit not involving Nvidia. Buyers expressed concerns about the uncertainty of unofficial after-sales service.
Official procurement documents reviewed by The Wall Street Journal showed that following tightened export restrictions at the end of last year, Chinese research institutions and universities continued to purchase high-end Nvidia AI chips from distributors in China. Nvidia has never officially shipped to China because the export restrictions took effect before the chip could be sold globally.
The documents further revealed that Tsinghua University and the Chinese Academy of Sciences have consistently been the primary buyers of Nvidia artificial intelligence chips.