Inside China’s “superchip” black market
Over the last two years, the Biden administration has heavily restricted the export of advanced computing chips to China, citing national security concerns. These “superchips” are used to power and generate artificial intelligence and can be used to develop weapons. But when one door closes, another tends to open, and in this case, that other door is China’s black market for smuggled chips.
New York Times reporter Ana Swanson recently published an investigation into China’s superchip black market. She visited the tech markets in Shenzhen, where she was able to find vendors who claimed to sell several powerful — and restricted — chips made by Nvidia. “Marketplace” host Kai Ryssdal spoke to Swanson about her reporting. The following is an edited transcript of their conversation.
Kai Ryssdal: So start for me where you start this piece: in the market in Shenzhen. Just describe for people who haven’t been there what these places are like.
Ana Swanson: Yeah. So I was able to do some reporting in this incredible electronics market in Shenzhen that stretches for about half a mile. And so Shenzhen is a city in southern China right across the border from Hong Kong that’s a center of the tech industry. And in this market there, it’s basically notorious for selling any kind of tech device you would want. So, you know, people were selling computers but also Apple watches. I saw various kinds of robots, robot waiters, and then also these chips, which I focus on in the article.
Ryssdal: To be clear, those markets are — I mean, it’s pandemonium in there, right? I’ve been to those kinds of markets, and what your reporting shows is that some of the world’s most sophisticated computer chips are being sold in there.
Swanson: That’s right, yeah. So I was looking for some of the most advanced chips made by Nvidia, chips that are used to create AI. And I wasn’t actually sure what I would find there either. And and what I found was that, you know, these chips seem to be pretty readily available. [I was] able to find quite a few vendors in the short time that I was there who said that they regularly do deliveries. And even some people who were talking about larger volume transactions, like hundreds or thousands of chips, which, you know, ranges into like $100 million, some of these deals. So, you know, the volume is really important, because it takes a lot of chips in order to do AI. And so that, for me, was really notable that large volumes did seem to be available there.
Ryssdal: To be clear, these are genuine articles, right? Not fakes, not counterfeits at all, any of that?
Swanson: So, you know, that’s a question that we were wondering about as well. We talked to some experts about it. They said that given the scale, it would be, you know, very difficult to counterfeit these kinds of really advanced products. It might be that some of these chips are older Nvidia chips that are being kind of like refurbished and sold. But, you know, some of these chips, yeah, they’re very advanced tech products.
Ryssdal: Now, how is this happening? Because, as you say in this article, and as we’ve reported on this program, there are sanctions all over the place against selling these chips to the Chinese.
Swanson: Yeah. I mean, my takeaway, just big picture, is that the financial incentives to do this are just incredible and overwhelming. So these chips are all made in Taiwan, and then a lot of times they’re just traveling around Asia in the electronic supply chain. Many of them never, you know, even cross U.S. borders until they’re delivered to the ultimate customer. So there’s also questions about how far the U.S. can really regulate and how far the U.S. reach extends.
Ryssdal: I was interested to read, actually, that not all of these chips are going to the military, right? Which is the big defense and national security concern. And they’re not even all going to AI. They’re going to social media companies, they’re going to game makers. They’re going sort of all over the place.
Swanson: Oh, totally. In fact, I would say, you know, the vast majority of chips that Nvidia has sent to China have not been used for military uses. You know, most of them are just used to kind of organize people’s social media feeds and serve personalized ads and search results, and some of them are even used for very beneficial things, like modeling climate change or making sure that high-speed trains are not derailed. But you know, some of them have also certainly been used for defense research, and I was able to find some previously unreported instances where these chips were being used to model underwater explosions or nuclear weapons, different types of weapons systems.
Ryssdal: About what happens next, Secretary of Commerce [Gina] Raimondo has said, in essence — I’m paraphrasing here — “We’re doing the best we can.” The best is clearly not good enough. So now what happens?
Swanson: One of the arguments they make is that they’re, you know, working overtime, but that the bureau that enforces these controls is tiny and really underfunded. Its whole budget is about $200 million, which is, you know, the cost of two fighter jets. It’s really small in comparison to anything we send to the Department of Defense. And then I think there’s also a lot of questions about what kind of due diligence companies should be doing. Is there more that they can do to, you know, track these supply chains? And are U.S. government regulations going to evolve too? We’re expecting another rollout of kind of even tighter restrictions on the chip sector at some point here.
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