Despite the strict restrictions imposed by the United States government on the sale of artificial intelligence processors to China, a New York Times report has revealed that smugglers and companies are helping the Chinese government, including its military, illegally acquire these NVIDIA chips.
The Illicit Chip Trade
Since the Trump administration, restrictions on the so-called Entity List of Controlled Exports have been tightened, and the Biden administration has continued to expand these measures. However, according to the NYT investigation, companies worldwide have found ways to bypass these restrictions, creating an active trade to supply China with prohibited chips.
The NYT spoke with representatives from 11 companies in China who confirmed they were selling or transporting restricted chips to Chinese buyers. Additionally, the investigation found that at least a dozen more companies were involved in these illegal sales through online channels. In Shenzhen, for example, deals involving thousands of chips were made, including a transaction valued at $103 million, one of the largest sales confirmed in the investigation.
Strategies to Evade Restrictions
The NYT report, in collaboration with the Center for Defense Studies, also revealed that more than a dozen companies affiliated with these transactions acquired restricted chips, some of which have been sanctioned for helping to modernize the Chinese military. NVIDIA and other U.S. companies, such as Intel and Microsoft, claim they comply with the imposed restrictions but admit they cannot fully control what happens within their distribution chains, especially within China.
One strategy uncovered by the NYT involves Chinese executives who, after restrictions were imposed, created new companies to continue operating. A notable case is Sugon, a technology company that collaborates with the Chinese military. Six months after being included on the Entity List, its former executives founded a new company called Nettrix, which quickly became one of the largest AI server manufacturers in China. NVIDIA, Intel, and Microsoft partnered with this new company, claiming they are complying with the law despite the restrictions.
The report also revealed that American chips have been used in supercomputing systems that support military research in China, including the development of nuclear weapons and torpedoes, as well as analyzing the radar signatures of stealth aircraft. This document highlights the difficulty of enforcing and upholding technological sanctions in an interconnected world, where companies find ways to circumvent restrictions to continue operating and supplying advanced technology to sanctioned countries.
