Nvidia's High-Tech AI Chips Reach Xi Jinping's Military, Sidestepping US Trade Restrictions: Report

Advanced AI chips from Nvidia Corporation (NASDAQ:NVDA) are reportedly making their way into China, despite a U.S. blockade, potentially aiding the Chinese military’s technological progress.

What Happened: A group of smugglers is allegedly bypassing the U.S. national security blockade to supply Xi Jinping‘s military with powerful microchips manufactured by Nvidia, reported The New York Times.

The U.S. has put restrictions on the kind of chips Nvidia can sell in China in a bid to curb the country’s AI development. However, these smugglers are reportedly evading the blockade and supplying Nvidia’s most advanced chips to state-affiliated groups in China.

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The Biden administration, aiming to retain global supremacy in the AI industry, intends to broaden its ban on exports of semiconductor manufacturing equipment to include Israel, Taiwan, Singapore, and Malaysia. The U.S. also has concerns that advanced AI could be utilized to modernize foreign militaries, thereby posing a threat to American security globally.

An inquiry by the publication disclosed that representatives from 11 companies within China claimed they “sold or transported banned Nvidia chips.” The investigation also discovered dozens of websites offering these chips online within the country.

One Chinese entrepreneur disclosed that his company had shipped a batch of 2,000 servers with “the most advanced” Nvidia chips to China in April, with the sale amounting to $103 million. He claimed that the chips were easy to obtain and that he regularly acquired banned chips from three to four suppliers, which he then sold to repeat customers in China.

Procurement documents from the Center for Advanced Defense Studies, a Washington-based nonprofit, indicated that over a dozen state-affiliated entities have bought black-market Nvidia chips. Some of these entities have been flagged by the U.S. government for assisting the Chinese military.

Nvidia has asserted that it adheres to all U.S. export controls and anticipates its customers to do the same. However, the company concedes it cannot oversee its entire supply chain.

Why It Matters: The smuggling of Nvidia chips into China despite U.S. export restrictions has been an ongoing issue. In July, it was reported that more than 70 distributors were openly advertising what they claimed to be Nvidia's restricted chips online, with many verified sellers confirming steady supplies.

In response to the restrictions, Nvidia was reportedly developing a new version of its flagship AI chip specifically for the Chinese market. The chip, provisionally named "B20," was designed to comply with U.S. export controls and was set to be mass-produced later that year.

However, the production of Nvidia’s upcoming AI chips faced a significant delay due to design flaws, which was expected to impact major clients including Meta Platforms Inc., Alphabet Inc.’s Google, and Microsoft Corp.

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Photo courtesy: Nvidia