A covert network of smugglers is aiding the Chinese military in obtaining high-performance microchips from Nvidia, an American technology leader, despite a stringent U.S. national security blockade aimed at curbing China’s advancements in artificial intelligence (AI).
Intensified U.S.-China AI Competition
The U.S. and China are in a heated race to lead the global AI industry. In response, the Biden administration is set to expand its ban on exporting semiconductor manufacturing equipment to additional countries, including Israel, Taiwan, Singapore, and Malaysia. This move is part of a broader strategy to secure American technological dominance.
The U.S. government is concerned that advanced AI technology could be used to enhance foreign military capabilities, posing a potential threat to global security. Nvidia’s microchips are crucial to AI development and have positioned the company among the world’s most lucrative firms. Currently, Nvidia is allowed to export only a less powerful version of its chips to China.
Comprehensive U.S. Tech Blockade
The U.S. has implemented one of the most stringent tech blockades in history, barring the export of advanced AI chips to China. Nvidia, a key supplier of these chips, is at the center of this restriction. Despite these measures, global businesses have found ways to circumvent the rules, as reported by The New York Times.
Smuggling Operations Exposed
The New York Times investigation, involving interviews with over 85 U.S. officials, industry experts, and analysts, along with visits to cities like Beijing, Kunshan, and Shenzhen, has uncovered a thriving illicit market for restricted AI technology. This black market supports China’s efforts to evade U.S. national security regulations.
Eleven Chinese companies admitted to selling or transporting banned Nvidia chips, and many more vendors are marketing these chips online. In Shenzhen’s sprawling markets, large transactions have been reported, including a notable deal worth $103 million—far exceeding previous figures.
State-Linked Purchases
The Times, in collaboration with the Center for Advanced Defense Studies, discovered that over a dozen state-affiliated organizations had acquired these restricted chips. Some of these entities are under sanctions for their involvement in upgrading the Chinese military.
Nvidia’s Stance
Nvidia and other U.S. firms claim to adhere to export restrictions but face challenges in monitoring their entire supply chain, especially in countries where these practices are not illegal. There is no direct evidence linking Nvidia to the banned chips in the markets.
“We comply with all U.S. export controls and expect our customers to do the same,” said Nvidia spokesperson Clarissa Eyu. “While we cannot track products after they are sold, we will take action if we find any violations.”
Circumventing Sanctions
Since the Trump administration, the U.S. has used the entity list to restrict exports to various Chinese companies, a policy that has been expanded under Biden. Enforcement is difficult, as some companies evade restrictions by setting up new businesses or altering their addresses. Former officials note that some front companies have operated unnoticed for years.
A prominent example is Nettrix, established by former executives of Sugon—a company placed on the entity list for supporting the Chinese military. Major tech firms like Nvidia, Intel, and Microsoft quickly formed partnerships with Nettrix, all asserting compliance with the law.
U.S. Chips in Chinese Supercomputers
The Times also uncovered previously unreported cases where American chips were used in Chinese supercomputers, aiding research on nuclear weapons, torpedoes, and stealth fighter radar systems.
Nvidia’s Ongoing Sales
Despite the restrictions, Nvidia continues to legally sell less advanced chips to Chinese companies, some with military ties. Of the 136 Chinese companies listed as Nvidia partners in July, at least 24 have military procurement contracts or are linked to defense contractors. One partner was added to the entity list in May for its role in supporting the high-altitude balloon that crossed the U.S. last year.
