TL;DR:
- Chinese buyers seek top-end Nvidia AI chips despite US sanctions.
- The Huaqiangbei electronics area in Shenzhen serves as a discreet hub for chip purchases.
- A100 chips are available at double the usual price, sourced from vendors outside the US
- High demand and ease of circumventing export restrictions fuel the underground market.
- Small-batch transactions cater to app developers, startups, researchers, gamers, and local authorities.
- Nvidia provides reduced-capability substitutes to comply with US laws.
- China’s access to high-end chips is affected, with potential sales losses for Nvidia.
- Chinese tech giants purchase China-tailored variants to mitigate the impact.
- Vendors procure chips through excess stock or import via locally incorporated firms.
- Fraudulent activities pose a risk, with refurbished chips masquerading as genuine.
- The availability of more advanced H100 chips is limited.
- Stricter enforcement may occur if China becomes a greater AI threat.
- Premiums commanded by Chinese vendors could decrease as Chinese AI startups withdraw.
Main AI News:
In the aftermath of US sanctions, where can Chinese buyers find top-of-the-line Nvidia AI chips? The answer lies within the renowned Huaqiangbei electronics area in Shenzhen, a bustling city in southern China. Among the numerous shops residing in the SEG Plaza skyscraper, discreet inquiries can lead to the acquisition of these sought-after chips.
Although not openly advertised, these chips come with a hefty price tag. Two anonymous vendors, interviewed in person by Reuters, revealed that they could offer limited quantities of A100 artificial intelligence chips designed by the prominent US chip manufacturer. However, these chips are priced at a staggering $20,000 per piece, double their usual market value.
While the purchase and sale of high-end US chips are not illegal in China, export restrictions from the United States have inadvertently given rise to an underground market. Vendors operating within this clandestine industry are cautious not to attract attention from either US or Chinese authorities.
In September, President Joe Biden’s administration directed Nvidia to halt exports of its two most advanced chips, namely the A100 and the recently developed H100, to mainland China and Hong Kong. This move aimed to impede China’s progress in AI and supercomputing amid escalating political and trade tensions. Subsequently, an array of export controls relating to semiconductors followed suit.
However, with the global surge in demand for high-end chips, especially Nvidia’s microprocessors renowned for their exceptional performance in machine learning tasks, the market has witnessed an unprecedented boom. Ivan Lau, the co-founder of Hong Kong’s Pantheon Lab, disclosed his ongoing negotiations with two vendors to secure 2-4 new A100 cards for their latest AI models.
Lau mentioned that these vendors, who sourced the chips from outside the United States, quoted a price of HK$150,000 ($19,150) per card, explicitly stating the absence of warranties or support services.
Reuters engaged with ten vendors across Hong Kong and mainland China, shedding light on the intense demand for A100 and H100 chips within the country. These vendors described the relative ease with which Washington’s sanctions can be circumvented for small-scale transactions. However, determining the overall volume of Nvidia A100 and H100 chips flowing into China or the extent to which these transactions satisfy demand remains challenging.
Buyers of these chips primarily consist of app developers, startups, researchers, gamers, and even local Chinese authorities. While vendors chose to remain anonymous due to the violation of US trade restrictions, they revealed the diverse range of customers involved.
Responding to Reuters’ inquiry, Nvidia emphasized that it does not permit exports of A100 or H100 chips to China, instead offering reduced-capability substitutes to comply with US laws. The statement added that immediate and appropriate action would be taken against any customer found breaching their agreement by exporting restricted products.
The US Department of Commerce spokesperson acknowledged the substantial impact of export control measures on China’s access to high-end chips. Additionally, they emphasized that reports of attempts to obtain these chips through illicit means were not surprising and that allegations of violations would be investigated.
Despite requests for comments, China’s State Council Information Office and the country’s industry ministry did not respond, leaving the situation ambiguous.
Nvidia estimated potential sales losses of $400 million in its third quarter of Chinese firms chose not to invest in alternative Nvidia products. To mitigate this impact, Nvidia developed China-specific variants, the A800 and H800, which have gained traction among major Chinese tech companies such as Tencent Holdings (0700.HK) and Alibaba (9988.HK), thanks to their financial capacity to purchase significant quantities.
In China, vendors primarily procure these chips through two methods: acquiring excess stock after Nvidia delivers large quantities to prominent US companies or importing through locally incorporated firms in places like India, Taiwan, and Singapore. Consequently, the quantities they can secure remain small, far from the volume required to build a sophisticated AI large language model from scratch.
According to an electronics procurement website, around 40 sellers of A100s can be found, predominantly in the Huaqiangbei electronics area. Furthermore, A100 listings are available on Alibaba’s (9988.HK) Taobao e-commerce site, Xiaohongshu (similar to Instagram), and Douyin (the Chinese version of TikTok). However, Alibaba, Xiaohongshu, and Douyin-owner ByteDance did not respond to requests for comments.
Vendors cautioned potential buyers about the prevalence of fraudulent activities, where refurbished chips are deceptively passed off as genuine A100s. Meanwhile, the more advanced H100 chips, introduced to the market in March, appear significantly harder to acquire. Out of the ten vendors interviewed, only one claimed to be able to procure H100s.
Notably, the United States currently shows limited concern over small-scale chip transactions. Charlie Chai, a Shanghai-based analyst at 86Research, suggests that stricter enforcement may only materialize when China poses a substantial threat following significant catch-ups in the field. Chai also predicts that the premiums commanded by Chinese vendors for A100 and H100 chips could diminish over time, as many Chinese AI startups, currently driving the demand, may eventually exit the market.
Conclusion:
China’s underground market for high-end Nvidia AI chips demonstrates the resilience and ingenuity of market participants in navigating export restrictions. The sustained demand for these chips, despite the higher prices and absence of warranties, reflects the importance of AI technology in various industries. However, the long-term outlook remains uncertain, as the market may face challenges such as potential fraud and the possibility of stricter enforcement in the future.
