"The Times found an active trade in Nvidia chips in China despite U.S. national security restrictions, as well as unreported incidents of how the technology had been used to further defense research.
The United States has tried, with some success, to halt China’s progress with artificial intelligence amid concerns that the technology is helping modernize the Chinese military.
U.S. officials have set up one of the most extensive tech blockades ever attempted, banning the export to China of advanced A.I. chips, which are primarily made by Nvidia, a Silicon Valley firm that is one of the world’s most valuable companies.
But given the vast profits at stake, businesses around the world have found ways to skirt the rules, an investigation by The New York Times has found.
Interviews with more than 85 current and former U.S. officials, executives and industry analysts, as well as reviews of corporate records and visits to companies in Beijing, Kunshan and Shenzhen, showed that there is an active trade in restricted A.I. technology in China — part of a global effort to help China circumvent U.S. national security restrictions.
Here are some takeaways from our investigation.
An underground marketplace of smugglers is funneling A.I. chips into China.
The Times spoke with representatives of 11 companies in China that said they sold or transported banned Nvidia chips, and found dozens more businesses offering them online.
Several vendors in a vast, mazelike market in Shenzhen reported deals involving hundreds or thousands of chips, including a $103 million dollar transaction that would be much larger than any previously reported in China.
Working with the Center for Advanced Defense Studies, a Washington-based nonprofit, the Times also found procurement documents showing that more than a dozen state-affiliated entities purchased restricted chips, including organizations under sanctions for modernizing the Chinese military.
Nvidia and other U.S. companies say they are abiding by the restrictions but cannot control everything in their distribution chain, including in countries like China that do not view the activity as illegal. There was no evidence that any of Nvidia’s banned chips in the markets came directly from the company.
Companies around the world have found workarounds, like rerouting business through new partnerships and overseas subsidiaries.
Since the beginning of the Trump administration, the United States had made aggressive use of a restricted trade list called the entity list, controlling exports to hundreds of Chinese companies. The Biden administration has expanded that power even further.
But enforcement is challenging. Some businesses have been able to sidestep the list by setting up a new company or just changing their registered address. Former officials said that some front companies had gone without detection for years.
The Times uncovered one instance of Chinese executives bypassing U.S. restrictions by creating a new business that is now one of China’s largest makers of A.I. servers.
Six months after Sugon — a firm that provided advanced computing to the Chinese military — was put on the entity list, a group of its former executives created a new company called Nettrix.
Nvidia, Intel and Microsoft quickly formed ties with the new firm. The companies said in statements that they had complied with the law.
American chips were used to further Chinese research valuable to the military.
The Times uncovered previously reported instances in which American chips had been used in supercomputing systems that helped researchers model nuclear weapons and torpedoes and analyze the radar signature of stealth fighters.
Like other tech companies, Nvidia today continues to legally sell less powerful chips to Chinese firms, some with military links.
Of the 136 Chinese companies Nvidia listed as partners on its website in July, at least 24 have had procurement contracts with the Chinese military or are partly owned by defense contractors or organizations on the entity list, according to records from Wirescreen and Datenna, business intelligence platforms. One partner was added to the entity list in May for supporting the high-altitude balloon that traversed the United States last year." [1]
1. Takeaways From Our Investigation Into Banned A.I. Chips in China. Swanson, Ana. New York Times (Online) New York Times Company. Aug 4, 2024.
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