Is the U.S. Losing the Chip War? China’s Sneaky Tactics Exposed

Despite U.S. export restrictions, AI semiconductors are reportedly smuggled into China and sold in electronics markets.

The New York Times reported that Chinese companies circumvent U.S. semiconductor export controls through interviews with industry analysts, former and current U.S. officials, and Chinese business representatives.

According to the report, it is an open secret that street vendors in the electronics markets of Shenzhen, southern China, sell AI microchips.

One vendor said they could deliver within two weeks, while another claimed to have shipped servers loaded with over 2,000 advanced semiconductors made by the U.S. company Nvidia from Hong Kong to mainland China. As evidence, they provided messages and photos from a $103 million deal arranged last April.

The New York Times reported that Chinese companies have found new suppliers to circumvent U.S. regulations. One of these companies is China’s largest AI server manufacturer and a Nvidia, Intel, and Microsoft partner.

U.S. companies have also found ways to keep selling their products to China. AI semiconductors enter through black markets, secret deals, and fake shipping labels in China. The Chinese government does not consider these sales as illegal.

This situation shows that despite the U.S.’s relentless efforts to block China, preventing technology leaks is not easy.

Previously, the U.S. government controlled the export of AI semiconductors and equipment to China and added hundreds of Chinese companies to a regulatory list, citing national security threats.

These measures aimed to restrict China but also resulted in billions of dollars in losses for U.S. companies. U.S. companies argue that the government’s actions unintentionally give Chinese competitors an advantage.

U.S. officials acknowledge that enforcing these measures is necessary but limited. In a recent interview, U.S. Commerce Secretary Gina Raimondo stated that this task is incredibly “tough,” and they have no illusions about executing it perfectly.

Raimondo noted that it is not surprising that China, with its extensive global network, has access to some semiconductors. However, she explained that the U.S. Department of Commerce is working with law enforcement, intelligence agencies, and allies to identify and close the loopholes that China exploits.