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February 28, 2024
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Inside China’s underground market for high-end Nvidia AI chips

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Psst! The place can a Chinese language purchaser buy top-end Nvidia AI chips within the wake of U.S. sanctions?

Visiting the famed Huaqiangbei electronics space within the southern Chinese language metropolis of Shenzhen is an efficient wager – particularly, the SEG Plaza skyscraper whose first 10 flooring are full of outlets promoting every thing from digicam components to drones. The chips are usually not marketed however asking discreetly works.

They do not come low cost. Two distributors there, who spoke with Reuters in individual on situation of anonymity, stated they might present small numbers of A100 synthetic intelligence chips made by the U.S. chip designer, pricing them at $20,000 a chunk – double the standard worth.

Whereas shopping for or promoting high-end U.S. chips will not be unlawful in China, U.S. export restrictions have created a de facto underground market with distributors eager not to attract scrutiny from both U.S. or Chinese language authorities.

President Joe Biden’s administration in September ordered Nvidia to cease exporting its two most superior chips – the A100 and the lately developed H100 – to mainland China and Hong Kong, a part of efforts to stymie Chinese language AI and supercomputing improvement amid intensifying political and commerce tensions. That was then adopted up with an array of semiconductor-related export controls.

However, as AI booms throughout the globe after the runaway success of OpenAI’s ChatGPT, demand for high-end chips has rocketed, significantly for Nvidia’s microprocessors that are extensively considered the very best at dealing with machine-learning duties.

“We’re speaking with two distributors now to get some,” stated Ivan Lau, co-founder of Hong Kong’s Pantheon Lab who’s attempting to buy 2-4 new A100 playing cards to run the startup’s newest AI fashions.

These distributors, who purchased the chips outdoors the U.S., had been quoting HK$150,000 ($19,150) per card, he stated, including: “They advised us straight up that there will probably be no guarantee or help.”

Reuters spoke with 10 distributors in Hong Kong and mainland China who described with the ability to simply procure small numbers of A100s. Their data highlighted each intense demand in China for the chips and the relative ease with which Washington’s sanctions might be circumvented for small-batch transactions.

Reuters was not capable of estimate general volumes of Nvidia A100 and H100 chips flowing into China or study to what extent the transactions happening go in the direction of satisfying demand.

Consumers are sometimes app builders, startups, researchers or avid gamers, the distributors stated, declining to be recognized as a result of the imports contravene U.S. commerce restrictions. One vendor stated consumers additionally included Chinese language native authorities.

Nvidia stated in an announcement to Reuters it didn’t permit exports of the A100 or H100 to China, as a substitute offering reduced-capability substitutes that adjust to U.S. regulation.

“If we obtain data {that a} buyer is breaching their settlement with us and exporting restricted merchandise in violation of the regulation, we might take fast and applicable motion,” the assertion stated.

The U.S. Division of Commerce, China’s State Council Data Workplace and China’s trade ministry didn’t reply to requests for remark.

Nvidia stated in September that $400 million in gross sales throughout its third quarter may very well be misplaced if Chinese language companies determined to not purchase different Nvidia merchandise.

Its new China-tailored slower variants – the A800 and H800 – developed to cushion that impression are actually being purchased by massive Chinese language tech companies akin to Tencent Holdings and Alibaba, which have deep pockets to buy enormous portions.

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The Chinese language distributors stated they procured the chips primarily in two methods: snatching up extra inventory that finds its option to the market after Nvidia ships massive portions to huge U.S. companies, or importing by firms domestically integrated in locations akin to India, Taiwan and Singapore.

This implies the portions they will safe are small, removed from what’s wanted to construct a complicated AI massive language mannequin from scratch.

A mannequin just like OpenAI’s GPT would require greater than 30,000 Nvidia A100 playing cards, in response to analysis agency TrendForce. However a handful can run complicated machine-learning duties and improve present AI fashions.

In line with an electronics procurement web site that listed some 40 sellers of A100s, most had been situated within the Huaqiangbei electronics space. However listings for A100s is also discovered on Alibaba’s Taobao e-commerce web site, on Xiaohongshu which is analogous to Instagram, in addition to on Douyin, the Chinese language model of TikTok.

Alibaba, Xiaohongshu and Douyin-owner ByteDance didn’t reply to requests for remark.

A few of the distributors cautioned that fraud had grow to be widespread with refurbished chips being handed off as A100s.

Nvidia’s extra superior H100 chips, solely available on the market since March, seem a lot tougher to return by.

Vinci Chow, a lecturer in economics on the Chinese language College of Hong Kong whose division has procured 4 A100 playing cards from native distributors for analysis functions, stated he had been advised some packs of eight H100 chips had been accessible for buy.However solely one of many 10 distributors Reuters spoke with stated they might procure H100s.

The U.S. is probably going not too bothered about small transactions of the chips, stated Charlie Chai, a Shanghai-based analyst at 86Research.

“Provided that/when China poses a better menace following important catch-ups will we see extra strict enforcement,” he stated.

He added the premiums presently commanded by Chinese language distributors for A100 and H100 chips may collapse sooner or later as lots of the Chinese language AI startups that had been driving purchases would finally withdraw from the market.

($1 = 7.8307 Hong Kong {dollars})

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