The 'black market' buys and sells high-end chips in China

Barriers from the US ban make Nvidia's most advanced chip lines trade silently at China's largest technology market.

Huaqiangbei in Shenzhen is the largest electronics market in China. This place has the skyscraper SEG Plaza, the first 10 floors are always filled with electronic components stores, from phones, cameras to drones. In it, high-end chip models are also sold discreetly.

"Black market" at the technology center

Reuters quoted two traders as saying that the chips were sold illegally at a "not cheap" price. They can offer a small amount of Nvidia A100 - the main chip model in training AI systems, for $ 20,000, more than double the usual price.

Outside the Huaqiangbei electronics market in Shenzhen, Guangdong province, China on June 8. Photo: Reuters

Buying and selling high-end chips is not illegal in China. However, from September 2022, the US asked Nvidia to stop exporting A100 and H100 chips to hinder China's supercomputer and super AI development amid rising political and trade tensions.

The explosion of artificial intelligence following the huge success of ChatGPT caused demand for high-end chips to skyrocket, including in China. Since then, an underground market was born to avoid the supervision of both parties.

Ivan Lau, co-founder of Pantheon Hong Kong lab, is trying to buy two to four A100 chip models to run the company's latest AI model. "We are negotiating with two suppliers to buy enough chips," Lau said.

There are about 10 suppliers in Hong Kong and China who say they can easily buy small quantities of the A100 and sell it for $20,000 each. However, the product does not have the same warranty or support as the original. But even that doesn't deter clients like Lau. This demonstrates strong chip buying demand in China and US sanctions that are easily bypassed by small transactions.

There are no recent estimates on the total number of Nvidia A100 and H100 chips pouring into China or the size of the transactions taking place.

China's chip demand

Customers buying chips on the "black market" are usually app developers, startups, researchers or gamers. However, they refused to disclose their identities because this is prohibited by the US. "If we find any trading related to the bans, we will take immediate action," Nvidia told Reuters . The company said it is still offering lower-capacity and legal-compliant alternatives.

A spokesman for the US Department of Commerce said that export controls had had a "significant impact" on China's supply of high-end chips. Additionally, the illegal chip trade is "no surprise" and warns the alleged violations are under investigation.

Chinese authorities have not yet commented on the case.

In September 2022, Nvidia said the company could lose $400 million in revenue if China doesn't buy its substitutes. Some of the chips made specifically for China, including the A800 and H800, are being bought by big tech companies like Tencent and Alibaba. These are companies with "full pockets", ready to buy in bulk.

Vendors said they bought chips mainly in two ways. First, they access the surplus after Nvidia has shipped to large companies in the US. The next way, they import chips from companies in India, Taiwan or Singapore.

With such a small number, it is not possible to meet the ambition to build a large AI language . According to research firm TrendForce, a model similar to GPT requires more than 30,000 Nvidia A100 cards. However, with a few, they can still run complex tasks and enhance AI models.

On an electronics shopping website, 40 people are selling A100 chips. Most of their physical addresses are in the Hoa Cuong Bac electronics market. The owners of these stores are also active on Taobao, Alibaba and some popular social networks such as Xiaohongshu and Douyin.

"Theft of dragons and phoenixes"

Due to the large market demand and the stealthy trading, several scams took place. Recently, refurbished chip warning vendors hiding in the shadow of A100 chips have become popular. Meanwhile, Nvidia's H100 chip is also extremely scarce, so buyers need to be wary if someone offers a large quantity.

Vinci Chow, a lecturer at the Chinese University of Hong Kong bought four A100 chips for research purposes. He was informed by the seller that a batch of 8 H100 chips was available. However, only 1 in 10 suppliers Reuters spoke to said they could afford the H100.

Charlie Chai, an analyst with 86Research in Shanghai, said the US is not too bothered about small deals in the chip market. "Only when China poses a greater threat after it catches up with AI technology will the US enforce strict measures," he said.