China's AI chip supply: Nvidia smuggling and loopholes persist despite US curbs
China continues to obtain Nvidia's top AI chips despite US export bans, through smuggling and loopholes allowing Chinese firms to rent computing power in third countries. The scandal over Nvidia CEO Jensen Huang's affair with a Singapore-based executive has spotlighted the issue, as domestic alterna
Nvidia CEO Jensen Huang has admitted to an affair with a Chinese executive at a Singapore-based company the US suspects of smuggling AI microchips into China, drawing fresh attention to how Beijing obtains cutting-edge chips despite American export restrictions.
Nvidia's graphics processing units (GPUs), originally designed for video games, are crucial for training and running artificial intelligence. Since ChatGPT's 2022 launch sparked an AI investment rush, Nvidia's market valuation has soared to $4.5 trillion, on par with Apple as the world's two most valuable companies.
Washington bans exports of Nvidia's top-end "Blackwell" and "Rubin" GPUs to China, citing military applications for advanced AI. The US eased controls this year on the less powerful "H200" chip, taking a 25 per cent cut of sales, but conditions have made shipments hard to approve, and Beijing is reportedly reluctant to buy as its own chip industry gains momentum. Huang has lobbied the US government to allow sales, warning restrictions fuel homegrown alternatives.
Despite controls, "Chinese vendors are still using cutting-edge Nvidia chips to train their models," Lian Jye Su, chief analyst at Omdia, told AFP. Chips may be smuggled or accessed through a loophole: Chinese firms rent computing power at data centres in third nations, often in Southeast Asia. "US export controls restrict where a chip is shipped, not who uses it," said Stephen Wu, founder of Carthage Capital. "Nvidia GPUs can sit in Malaysia's Johor region in full compliance while a customer in Shenzhen logs in."
White House adviser Michael Kratsios said this summer that Moonshot AI had accessed high-end Nvidia chips in Thailand. Tech outlet The Information reported in December that DeepSeek developed a new model using thousands of chips dismantled overseas and brought into China. DeepSeek did not respond to a comment request; Nvidia told The Information it had seen no evidence of such smuggling, which "seems far-fetched."
"Nvidia chips still make top-level AI work faster and easier, but they are no longer the only path," said Poe Zhao, founder of Hello China Tech. "The open question is cost" as training on Chinese chips takes more time and engineering. Huawei is China's top Nvidia competitor, though it lags behind. DeepSeek will reportedly train its next major AI model on Huawei chips, and Huawei said in September its next-generation AI chip would be ready in the first quarter of 2027, three quarters early. "Chinese-made chips are improving fast," Su said. "They pay for it in power and cost — which they can afford, because Chinese electricity is cheap and the chips are state-subsidised," Wu added.