Internal China’s underground marketplace for excessive-shatter Nvidia AI chips

Inside China’s underground market for excessive-close Nvidia AI chips

© Reuters. FILE PHOTO: A smartphone with a displayed NVIDIA model is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration
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By Josh Ye, David Kirton and Chen Lin

HONG KONG/SHENZHEN, China (Reuters) - Psst! Where can a Chinese buyer aquire high-close Nvidia (NASDAQ:NVDA) AI chips within the wake of U.S. sanctions?

Visiting the renowned Huaqiangbei electronics location within the southern Chinese city of Shenzhen is an correct wager - in particular, the SEG Plaza skyscraper whose first 10 flooring are stuffed with outlets selling all the pieces from digital camera ingredients to drones. The chips are no longer marketed but asking discreetly works.

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They don't come low-tag. Two vendors there, who spoke with Reuters in person on situation of anonymity, acknowledged they could well provide slight numbers of A100 artificial intelligence chips made by the U.S. chip dressmaker, pricing them at $20,000 a part - double the identical outdated tag.

While shopping for or selling excessive-close U.S. chips is no longer unlawful in China, U.S. export restrictions hang created a de facto underground market with vendors enthusiastic now to not map scrutiny from both U.S. or Chinese authorities.

President Joe Biden's administration in September ordered Nvidia to quit exporting its two most developed chips - the A100 and the no longer too long ago developed H100 - to mainland China and Hong Kong, fragment of efforts to stymie Chinese AI and supercomputing trend amid intensifying political and substitute tensions. That used to be then followed up with an array of semiconductor-linked export controls.

Nevertheless, as AI booms correct thru the globe after the runaway success of OpenAI's ChatGPT, inquire of of for excessive-close chips has rocketed, significantly for Nvidia's microprocessors which could well be broadly regarded as the most attention-grabbing at handling machine-discovering out responsibilities.

"We're speaking with two vendors now to salvage some," acknowledged Ivan Lau, co-founder of Hong Kong's Pantheon Lab who's attempting to aquire 2-4 recent A100 playing cards to slither the startup's latest AI devices.

Those vendors, who purchased the chips outdoors the U.S., had been quoting HK$150,000 ($19,150) per card, he acknowledged, alongside side: "They educated us straight up that there'll be no guarantee or toughen."

Reuters spoke with 10 vendors in Hong Kong and mainland China who described being ready to without complications secure slight numbers of A100s. Their information highlighted both intense inquire of of in China for the chips and the relative ease with which Washington's sanctions could well additionally be circumvented for slight-batch transactions.

Reuters used to be no longer ready to estimate overall volumes of Nvidia A100 and H100 chips flowing into China or be taught to what extent the transactions taking put trot towards stress-free inquire of of.

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Investors are in most cases app builders, startups, researchers or gamers, the vendors acknowledged, declining to be recognized for the reason that imports contravene U.S. substitute restrictions. One vendor acknowledged patrons additionally integrated Chinese native authorities.

Nvidia acknowledged in a assertion to Reuters it did no longer enable exports of the A100 or H100 to China, as a substitute providing diminished-skill substitutes that observe U.S. legislation.

"If we receive information that a customer is breaching their settlement with us and exporting restricted products in violation of the legislation, we could well steal instantaneous and acceptable action," the assertion acknowledged.

A U.S. Department of Commerce spokesperson acknowledged in a assertion to Reuters that export defend a watch on measures hang had a "giant affect" on China's availability of excessive-close chips.

The assertion additionally acknowledged reports of events searching for to assemble these chips thru illicit means had been "no longer a shock", alongside side that "allegations of violations are investigated".

China's Advise Council Data Place of work and China's substitute ministry did no longer acknowledge to requests for comment.

Nvidia acknowledged in September that $400 million in sales at some level of its third quarter could well be misplaced if Chinese corporations made up our minds now to not aquire substitute Nvidia products.

Its recent China-tailor-made slower variants - the A800 and H800 - developed to cushion that affect for the time being are being purchased by gigantic Chinese tech corporations equivalent to Tencent Holdings (OTC:TCEHY) and Alibaba (NYSE:BABA), which hang deep pockets to aquire worthy quantities.


The Chinese vendors acknowledged they procured the chips primarily in two ways: snatching up excess stock that finds its manner to the market after Nvidia ships gigantic quantities to giant U.S. corporations, or importing thru corporations within the neighborhood incorporated in locations equivalent to India, Taiwan and Singapore.

This implies the quantities they can stable are slight, removed from what's wanted to originate a classy AI gigantic language model from scratch.

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A model equivalent to OpenAI's GPT would require extra than 30,000 Nvidia A100 playing cards, in retaining with investigate firm TrendForce. Nevertheless a handful can slither complex machine-discovering out responsibilities and presents a enhance to present AI devices.

In response to an electronics procurement web sites that listed some 40 sellers of A100s, most had been positioned within the Huaqiangbei electronics location. Nevertheless listings for A100s shall be chanced on on Alibaba's Taobao e-commerce position, on Xiaohongshu which is equivalent to Instagram, moreover to on Douyin, the Chinese model of TikTok.

Alibaba, Xiaohongshu and Douyin-owner ByteDance did no longer acknowledge to requests for comment.

Likely the most vendors cautioned that fraud had become recent with refurbished chips being handed off as A100s.

Nvidia's extra developed H100 chips, most attention-grabbing on the market since March, seem worthy tougher to obtain.

Vinci Chow, a lecturer in economics at the Chinese College of Hong Kong whose division has procured four A100 playing cards from native vendors for analysis capabilities, acknowledged he had been educated some packs of eight H100 chips had been accessible for aquire.Nevertheless most attention-grabbing one in all the ten vendors Reuters spoke with acknowledged they could well secure H100s.

The U.S. is likely no longer too troubled about slight transactions of the chips, acknowledged Charlie Chai, a Shanghai-primarily based mostly analyst at 86Research.

"Easiest if/when China poses a much bigger probability following major gain-united stateswill we stare extra strict enforcement," he acknowledged.

He added the premiums for the time being commanded by Chinese vendors for A100 and H100 chips could well collapse in due course as quite so much of the Chinese AI startups that had been riding purchases would eventually withdraw from the market.

($1=7.8307 Hong Kong dollars)

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