Despite extensive efforts by US authorities to keep Nvidia’s most advanced generative AI chips out of China, there is “a barely concealed network of buyers, sellers and couriers bypassing the Biden administration’s restrictions,” according to an investigative report published Tuesday in The Wall Street Journal.
“More than 70 distributors are openly advertising online what they purport to be Nvidia’s restricted chips and the Journal got in direct contact with 25 of them. Many of the verified sellers said they have supplies amounting to dozens of the high-end Nvidia chips each month,” the story reported. “The flow of Nvidia chips is so steady that most of those sellers take preorders and promise delivery in weeks, the Journal found. Some also sold entire servers — costing upward of roughly $300,000 — with each containing eight high-end Nvidia chips.”
The WSJ said the system relies on various loopholes in the restrictions, such as filing incomplete paperwork that obscures the fact that the chips are not allowed for export, or that other countries are not enforcing the ban.
The US restrictions are policed by the US Commerce Department, which has been criticized for weak enforcement efforts.
But enforcing these restrictions is difficult and perhaps untenable, said Brian Levine, an Ernst & Young managing partner who used to work for the US Justice Department where he investigated and prosecuted trafficking in counterfeit goods and other intellectual property crimes. He was also a federal representative to the US law enforcement Joint Liaison Group with China.
“Trafficking in counterfeit goods is also illegal, but who hasn’t seen counterfeit designer handbags being openly sold on a street corner?” Levine said. “There is really no limit to how much time, energy, and money one can spend on enforcement. The question is really ‘How much of our limited public resources do we actually want tied up in such an effort?’”
Irina Tsukerman, president of global strategy advisory firm Scarab Rising, echoed a point made in the WSJ article that the situation involves two very different groups. The first is a group of people who are taking advantage of the loopholes “by legal means and are looking to make a quick profit for themselves.” The second group are professional smugglers who are bringing in the chips in large quantities.
The WSJ report interviewed various chip resellers who had little difficulty getting around US restrictions.
Chinese resale prices for the chips have fallen of late, but are still at a premium compared to standard list price. Nvidia’s A100 chip sells for $22,500 in China, compared to around $10,000 elsewhere, and the higher-end H100 for $32,400 instead of $25,000, the newspaper reported. “Some merchants said they have up to dozens of chips in stock at one time, and preorders of bigger quantities can be delivered in one to two weeks,” it said, noting that the chips are supplied in original wholesale packaging. The report quoted one distributor on how they get around restrictions. “It does become very hard, but don’t be silly, there is always a way.”
