Holes in US Semiconductor Regulations... "NVIDIA Chips Openly Sold in Shenzhen, China"

NYT "Global Companies Seek Ways to Bypass US Regulations"

Despite the U.S. government's semiconductor export restrictions to China, AI chips continue to flow into China through smuggling and other means, raising ongoing concerns about loopholes in export controls to China.

According to the New York Times (NYT) on the 3rd (local time), AI semiconductors from companies like Nvidia, which are banned from export to China, are openly sold in the electronics market in Shenzhen, China. One seller said delivery was possible within two weeks, while another seller revealed that a large number of servers equipped with advanced semiconductors made by Nvidia were recently shipped to mainland China.

Chinese companies are reportedly finding new trading channels to circumvent U.S. export controls. One of China's largest AI server manufacturers, which is also a partner of Nvidia, Intel, and Microsoft (MS), is involved. The Chinese government does not consider the inflow of AI semiconductors through smugglers' black markets, secret deals, or false shipping labels as illegal.

U.S. companies are also seeking alternatives to export their products to China. Nvidia, for example, is preparing to release a China-specific version of its latest AI semiconductor, 'Blackwell,' with reduced performance to avoid U.S. export restrictions. This is because being blocked from one of the world's largest markets, China, has dealt a significant blow to sales. Another complaint from U.S. companies is that Chinese companies are gaining a competitive advantage in domestic sales by capitalizing on the export restrictions imposed on U.S. firms.

The newspaper reported, based on interviews with 85 current and former U.S. government officials, industry experts, and Chinese company representatives, that although the U.S. is gradually increasing the level of semiconductor export restrictions to China, Chinese companies are circumventing these controls, creating loopholes. The U.S. government has controlled the export of AI semiconductors and semiconductor equipment to China and added hundreds of Chinese companies to the regulatory list citing national security threats. However, China has evaded these regulations, exposing enforcement limitations and raising concerns that this may only accelerate China's technological self-reliance.

In response, the U.S. government is also exploring ways to strengthen the effectiveness of semiconductor export controls to China. Gina Raimondo, U.S. Secretary of Commerce, recently explained in an interview that they are working with law enforcement agencies, intelligence agencies, and allies to identify and close these loopholes.

The NYT stated, "Despite U.S. national security sanctions, Nvidia semiconductor transactions are actively taking place in China, and there have been cases where this technology was used for defense research," adding, "Companies worldwide are finding ways to circumvent U.S. regulations."