Inside China's underground market for high-end Nvidia AI chips
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[June 20, 2023] By
Josh Ye, David Kirton and Chen Lin
HONG KONG/SHENZHEN, China (Reuters) - Psst! Where can a Chinese buyer
purchase top-end Nvidia AI chips in the wake of U.S. sanctions?
Visiting the famed Huaqiangbei electronics area in the southern Chinese
city of Shenzhen is a good bet - in particular, the SEG Plaza skyscraper
whose first 10 floors are crammed with shops selling everything from
camera parts to drones. The chips are not advertised but asking
discreetly works.
They don't come cheap. Two vendors there, who spoke with Reuters in
person on condition of anonymity, said they could provide small numbers
of A100 artificial intelligence chips made by the U.S. chip designer,
pricing them at $20,000 a piece - double the usual price.
While buying or selling high-end U.S. chips is not illegal in China,
U.S. export restrictions have created a de facto underground market with
vendors keen not to draw scrutiny from either U.S. or Chinese
authorities.
President Joe Biden's administration in September ordered Nvidia to stop
exporting its two most advanced chips - the A100 and the recently
developed H100 - to mainland China and Hong Kong, part of efforts to
stymie Chinese AI and supercomputing development amid intensifying
political and trade tensions. That was then followed up with an array of
semiconductor-related export controls.
But, as AI booms across the globe after the runaway success of OpenAI's
ChatGPT, demand for high-end chips has rocketed, particularly for
Nvidia's microprocessors which are widely regarded as the best at
handling machine-learning tasks.
"We are talking with two vendors now to get some," said Ivan Lau,
co-founder of Hong Kong's Pantheon Lab who is trying to purchase 2-4 new
A100 cards to run the startup's latest AI models.
Those vendors, who bought the chips outside the U.S., were quoting
HK$150,000 ($19,150) per card, he said, adding: "They told us straight
up that there will be no warranty or support."
Reuters spoke with 10 vendors in Hong Kong and mainland China who
described being able to easily procure small numbers of A100s. Their
information highlighted both intense demand in China for the chips and
the relative ease with which Washington's sanctions can be circumvented
for small-batch transactions.
Reuters was not able to estimate overall volumes of Nvidia A100 and H100
chips flowing into China or learn to what extent the transactions taking
place go towards satisfying demand.
Buyers are typically app developers, startups, researchers or gamers,
the vendors said, declining to be identified because the imports
contravene U.S. trade restrictions. One vendor said buyers also included
Chinese local authorities.
Nvidia said in a statement to Reuters it did not allow exports of the
A100 or H100 to China, instead providing reduced-capability substitutes
that comply with U.S. law.
"If we receive information that a customer is breaching their agreement
with us and exporting restricted products in violation of the law, we
would take immediate and appropriate action," the statement said.
A U.S. Department of Commerce spokesperson said in a statement to
Reuters that export control measures have had a "substantial impact" on
China's availability of high-end chips.
The statement also said reports of parties seeking to obtain these chips
through illicit means were "not a surprise", adding that "allegations of
violations are investigated".
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People stand outside the SEG E-Market at
Huaqiangbei electronics market in Shenzhen, Guangdong province,
China June 8, 2023. REUTERS/David Kirton
China's State Council Information Office and China's industry
ministry did not respond to requests for comment.
Nvidia said in September that $400 million in sales during its third
quarter could be lost if Chinese firms decided not to buy
alternative Nvidia products.
Its new China-tailored slower variants - the A800 and H800 -
developed to cushion that impact are now being bought by large
Chinese tech firms such as Tencent Holdings and Alibaba, which have
deep pockets to purchase huge quantities.
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The Chinese vendors said they procured the chips primarily in two
ways: snatching up excess stock that finds its way to the market
after Nvidia ships large quantities to big U.S. firms, or importing
through companies locally incorporated in places such as India,
Taiwan and Singapore.
This means the quantities they can secure are small, far from what's
needed to build a sophisticated AI large 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 run complex machine-learning tasks and enhance existing
AI models.
According to an electronics procurement website that listed some 40
sellers of A100s, most were located in the Huaqiangbei electronics
area. But listings for A100s could also be found on Alibaba's Taobao
e-commerce site, on Xiaohongshu which is similar to Instagram, as
well as on Douyin, the Chinese version of TikTok.
Alibaba, Xiaohongshu and Douyin-owner ByteDance did not respond to
requests for comment.
Some of the vendors cautioned that fraud had become common with
refurbished chips being passed off as A100s.
Nvidia's more advanced H100 chips, only on the market since March,
appear much harder to come by.
Vinci Chow, a lecturer in economics at the Chinese University of
Hong Kong whose department has procured four A100 cards from local
vendors for research purposes, said he had been told some packs of
eight H100 chips were available for purchase.But only one of the 10
vendors Reuters spoke with said they could procure H100s.
The U.S. is likely not too bothered about small transactions of the
chips, said Charlie Chai, a Shanghai-based analyst at 86Research.
"Only if/when China poses a greater threat following significant
catch-ups will we see more strict enforcement," he said.
He added the premiums currently commanded by Chinese vendors for
A100 and H100 chips could collapse in the future as many of the
Chinese AI startups that were driving purchases would eventually
withdraw from 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 and David Shepardson in Washington; Editing by Brenda Goh
and Edwina Gibbs)
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