China gets banned Nvidia AI chips via gray markets

Evidence has accumulated that, despite the United States’ export controls, China’s military-related firms, research centers and universities can still acquire Nvidia’s high-end artificial intelligence (AI) chip. Technology experts say the Biden administration has failed so far to stop small distributors from reselling and smuggling the chips into the Chinese underground markets.

The US Commerce Department’s Bureau of Industry and Security (BIS) banned the export of the A100 and H100 chips to China in October 2022 and the export of the A800 and H800 chips to the country last October, but results have not been satisfactory.

One early study, from the Center for a New American Security (CNAS), a Washington-based non-profit organization, said last October that thousands of controlled AI chips could have been smuggled into China in 2023. By 1925, it said, the figure might grow to as many as 12,500 – or even hundreds of thousands – per year.

Some Chinese firms have set up multiple shell companies in third countries, used them to place small orders with AI chip distributors and diverted those chips to China, it said – and some Chinese cloud providers placed bulk orders for AI chips for their overseas data centers and redirected some of these chips to China.

The CNAS suggested that the BIS pilot an AI chip registry and inspection program, as well as end-user verification programs in Southeast Asia. It said AI chip exporters should be required to carry out rigorous customer screening targeted at key vectors for large-scale smuggling.

Now a document obtained by Reuters shows that Chinese state entities have procured Nvidia’s A100 chips in more than 100 tenders since October 2022 and A800 chips in dozens of tenders since last