Inside the Chinese underground market for high-end Nvidia AI chips

HONG KONG/SHENZHEN, China, June 20 (Reuters) – Psst! Where can a Chinese buyer buy high-end Nvidia (NVDA.O) AI chips in the wake of US sanctions?

Visiting the famous Huaqiangbei electronics area in the southern Chinese city of Shenzhen is a good bet, especially the SEG Plaza skyscraper whose top 10 floors are filled with shops selling everything from camera parts to drones. Chips are not advertised but asking discreetly works.

They don’t come cheap. Two sellers there, who spoke to Reuters in person on condition of anonymity, said they could supply a small number of A100 artificial intelligence chips made by the US chip designer, priced at $20,000 a piece, double the price. normal.

While the buying or selling of high-end US chips is not illegal in China, US export restrictions have effectively created an underground market with sellers eager not to attract scrutiny from US or Chinese authorities.

President Joe Biden’s administration in September ordered Nvidia to stop exporting its two most advanced chips — the A100 and the newly developed H100 — to mainland China and Hong Kong, part of efforts to stymie the Chinese AI and supercomputing development amid heightened political and trade tensions. This was then followed by a series of export controls related to semiconductors.

But, with AI booming worldwide after the runaway success of OpenAI’s ChatGPT, the demand for high-end chips has soared, especially for Nvidia’s microprocessors which are widely regarded as the best at running tasks of machine learning.

“We’re talking to two vendors now to get some,” said Ivan Lau, co-founder of Hong Kong’s Pantheon Lab, who is looking to buy 2-4 new A100 boards to run the startup’s latest AI models. .

Those vendors, who bought the chips outside the US, were quoting HK$150,000 ($19,150) per card, he said, adding, “They directly told us there will be no warranty or support.”

Reuters spoke to 10 vendors in Hong Kong and mainland China who described being able to source small numbers of A100s easily. Their information highlighted both the intense demand in China for the chips and the relative ease with which Washington sanctions can be circumvented for small-lot transactions.

Reuters has not been able to estimate the overall volumes of Nvidia A100 and H100 chips flowing into China or how far current deals are going to meet demand.

The buyers are typically app developers, startups, researchers or gamers, the sellers said, refusing to be identified because the imports violate US trade restrictions. A seller said the buyers also included Chinese local authorities.

Nvidia said in a statement to Reuters that it will not allow exports of the A100 or H100 to China, instead supplying smaller-capacity replacements that comply with US law.

“If we receive information that a customer is violating his agreement with us and exporting restricted products in violation of the law, we will take immediate and appropriate action,” the statement said.

The US Department of Commerce, China’s State Council Information Office and China’s Ministry of Industry did not respond to requests for comment.

Nvidia said in September that $400 million in sales during the third quarter could be lost if Chinese companies decide not to buy alternative Nvidia products.

Its new Chinese-tailored slower variants – the A800 and H800 – developed to cushion that impact are now being bought by big Chinese tech firms such as Tencent Holdings (0700.HK) and Alibaba (9988.HK), which they have deep pockets for buying huge quantities.


Chinese suppliers said they sourced the chips mainly in two ways: by hoarding excess inventory that finds its way to market after Nvidia ships large quantities to large US companies, or by importing through locally incorporated companies in places like India, Taiwan and Singapore.

This means that the quantities they can guarantee are small, far from what is needed to build a large sophisticated AI-powered language model from scratch.

A model similar to OpenAI’s GPT would require more than 30,000 Nvidia A100 cards, according to research firm TrendForce. But a handful can perform complex machine learning tasks and improve existing AI models.

According to an electronics shopping website listing about 40 A100 sellers, most of them were located in the Huaqiangbei electronics area. But A100 listings can also be found on Alibaba’s Taobao e-commerce site (9988.HK), Xiaohongshu which is similar to Instagram, as well as Douyin, China’s version of TikTok.

Alibaba, Xiaohongshu, and Douyin’s owner ByteDance did not respond to requests for comment.

Some suppliers warned that fraud had become commonplace with refurbished chips passed off as A100s.

Nvidia’s more advanced H100 chips, which have only been on the market since March, seem much harder to find.

Vinci Chow, an economics lecturer at the Chinese University of Hong Kong, whose department bought four A100 cards from local vendors for research purposes, said he was told a few packs of eight chips were available for purchase. H100. But only one of the 10 suppliers Reuters spoke to said it could source the H100s.

The US probably isn’t too concerned about small chip transactions, said Charlie Chai, a Shanghai-based analyst at 86Research.

“Only if/when China poses a bigger threat following significant recoveries will we see stricter enforcement,” he said.

He added that premiums currently being demanded by Chinese suppliers for the A100 and H100 chips could plummet in the future as many of the Chinese AI startups that were leading the buying eventually pull out of the market.

($1 = 7.8307 Hong Kong dollars)

Reporting by Josh Ye in Hong Kong, David Kirton in Shenzhen and Chen Lin in Singapore; Additional reporting by Fanny Potkin in Singapore; Editing by Brenda Goh and Edwina Gibbs

Our standards: the Thomson Reuters Trust Principles.

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