US Export Controls Fail to Stop Flow of Nvidia AI Chips to China

Despite US export restrictions, Chinese buyers are successfully acquiring Nvidia's latest AI chips, illustrating the challenges of enforcing technology bans, the Wall Street Journal reports. Traders in China are utilizing third-party intermediaries in neighboring regions to procure computer systems equipped with Nvidia's Blackwell chips, offering delivery within six weeks.

This activity represents a continuation of the "underground network" that has emerged since the US imposed export controls in 2022, aiming to limit China's access to advanced semiconductors for AI development.

The Trump administration is currently assessing its approach to managing technological competition with China, with the gray market activity presenting a significant challenge.

Beijing's continued promotion of AI development, coupled with the recent surge in interest surrounding Chinese AI developer DeepSeek, has spurred local companies to accelerate their adoption of AI technology.

James Luo, a vendor based in Shenzhen, recently received an order for over a dozen Blackwell servers from a Shanghai-based customer, involving a payment of approximately $3 million through an escrow account. Luo anticipates shipping the servers by mid-March.

Chinese resellers, including Luo, are utilizing entities registered outside of China to purchase Nvidia servers from companies in countries like Malaysia, Vietnam, and Taiwan. These companies, including data center operators and authorized Nvidia customers, are reselling a portion of their servers to China.

Nvidia has stated that it will investigate all reports of potential diversion and take appropriate action. The company emphasizes that customers of sophisticated AI equipment require ongoing services and support, which anonymous traders claiming to possess Blackwell systems cannot provide.

Nvidia began shipping Blackwell machines in December, generating $11 billion in sales during the quarter ending in January. This represents approximately 30% of the Silicon Valley company's total revenue.

Distributors report that a Blackwell server containing eight AI processors can retail for over $600,000 in China, commanding a premium compared to global pricing.

While Blackwell chips are currently Nvidia's top-of-the-line products, older models from the Hopper family of AI processors remain subject to US export controls. Traders indicate that the H200 chip in the Hopper series constitutes the majority of orders from Chinese customers.

A server equipped with eight H200 chips typically sells for around $250,000 in China, a modest premium compared to the global price. Some sellers claim the ability to deliver dozens of servers immediately or up to hundreds within a month.

At least two Chinese universities in Shenzhen and Wuhan have received six AI servers equipped with restricted Hopper chips since December, according to official procurement contracts. The full extent of this activity remains unclear, as details are often redacted from procurement documents involving high-end AI chips.

The Biden administration has implemented several measures over the past two years to prevent China from acquiring the most advanced chips, including blocking access to advanced semiconductor equipment.

Nvidia and device makers have enhanced their "know-your-customer" policies and are conducting more frequent and stringent site checks to ensure that equipment is not being resold to China.

Authorities in countries like Singapore and Taiwan have increased scrutiny, making underground trading more difficult, especially for larger orders. Some companies concerned about the risks associated with these channels have ceased such purchases and sought alternative workarounds.

Luo and other distributors report that some resellers are printing unique serial numbers of the resold devices onto older equipment, presenting these older machines for inspection.

In its final days in office, the Biden administration implemented some of its strongest measures, introducing country caps on AI chip purchases globally. This was intended to prevent countries from acting as transshipment points for large quantities of chips destined for China. The effectiveness of these measures remains to be seen, as the Trump administration has not yet clarified whether it will maintain them.

Following the initial implementation of Biden-era controls in late 2022, a network of intermediaries emerged, often transporting small quantities of chips to China via human couriers. This informal network has since evolved into a more sophisticated operation, handling the paperwork, foreign payments, and logistics of moving bulky servers and modules containing the latest chips across international borders.

Instead of being sold individually, chips are now more frequently sold as complete systems manufactured by device makers such as Dell Technologies and Super Micro Computer. Both companies have stated their compliance with export controls and their commitment to taking action if wrongdoing is discovered.

Even if Chinese entities manage to acquire Nvidia's latest chips, the quantities may not be sufficient to build world-leading AI systems. US AI executives have indicated that they are deploying hundreds of thousands of chips, far exceeding the volume offered by Chinese sellers. However, Chinese startup DeepSeek recently claimed to have built competitive AI models using fewer chips.

Meanwhile, Chinese companies are increasing their orders for Nvidia's H20, the most powerful chip not currently subject to US export controls. Local cloud-computing giants like Alibaba, Tencent, and ByteDance are purchasing more H20 chips, potentially