The Chinese are smuggling more and more chips into their country. This poses problems for the US

Chuan Geng and Shiwei Yang are moving fast. American high-tech should not contribute to China's progress, so the US will ban the export of leading AI chips to China in the fall of 2022. Shortly thereafter, the two Chinese nationals will found a company: ALX Solutions, based in El Monte, California. If the allegations of the US Department of Justice are correct, Geng and Yang will use their company to circumvent controls and supply China with cutting-edge American chips.

Smuggling is a major problem for the US in the technology war with China. American high-performance chips are currently only allowed to be shipped to China with special licenses. A recent investigation by the Financial Times revealed that between April and July alone, tens of thousands of processors worth a billion US dollars were smuggled into China.

The chips are essential for developments in the field of artificial intelligence (AI), which underpins numerous civilian and military applications. With the export ban, the US is attempting to slow China's technological development.

ALX Solutions also regularly receives remittances from companies in Hong Kong and China. In January 2024, a Chinese company paid ALX Solutions one million dollars. In December of the same year, the company shipped processors to China. Between October 2022 and July 2025, ALX Solutions exported tens of millions of dollars worth of licensed processors without a license.

Since the export ban, there are likely numerous companies like ALX Solutions in the US. Or, as Erich Grunewald of the American Institute for AI Policy and Strategy puts it: "Smuggling is the rule, not the exception."

Chinese students are bringing banned processors from American chip designer Nvidia to China in their luggage. The processors are as heavy as a laptop, twice as thick, and appear inconspicuous to the untrained eye.

When inspecting baggage, most officials lack the knowledge to distinguish between permitted and prohibited processors. The layperson simply sees electronics.

Those who want to smuggle on a larger scale ship an entire rack of processors, the size of a large suitcase and weighing 150 kilograms. The sender declares the goods as electronics, tea, or toys. Then they choose a Southeast Asian destination port with a high throughput volume, such as Malaysia, Thailand, or Singapore. This minimizes the risk of inspection.

In the United States, the Bureau of Industry and Security (BIS) is responsible for ensuring compliance with export controls. However, while smuggling continues to increase, only a single BIS official is responsible for monitoring compliance with export controls throughout Southeast Asia.

Once the processors are in China, they are openly advertised on social media. Anyone who types the names of various banned Nvidia chips into the search field on the Chinese version of TikTok will see accounts selling these chips.

Grunewald of the Institute for AI Policy and Strategy estimates that 140,000 Nvidia processors were smuggled into China last year. While this is a significant number, it is within the expected range. The value of the smuggled goods cannot be quantified, however. Prices on the black market vary too widely depending on the processor model and supplier.

Where the smuggled processors are used in China remains unclear. Just as the smuggling process begins, so too does it end up in shell companies and micro-enterprises.

Although Nvidia repeatedly claims that its processors cannot be used in data centers without special support from the manufacturer, experts believe that there are numerous Chinese companies specializing in the maintenance and repair of smuggled hardware. The fact that China can operate Western high-tech even without manufacturer support is already evident in other industrial sectors, such as automated computer chip production .

Grunewald says smuggled processors are enormously important for China's technological development and, to this day, even more important than Chinese alternatives. These are significantly inferior in quality to the latest Nvidia models.

According to the Financial Times research, the black market prices also demonstrate how essential Nvidia's state-of-the-art processors are for cutting-edge AI developments.

There are repeated rumors that leading AI companies like Deepseek, Huawei, and Alibaba are working with banned processors. When Deepseek surprised the world with its language model earlier this year, experts at Semianalysis , for example, suspected that this was only possible thanks to cutting-edge Nvidia chips. Further concerns: The leading AI companies could profit indirectly from the smuggled processors, for example, by collaborating with smaller, unknown cloud providers that use the contraband. There is no evidence of either of these to date.

Either way, too few processors are making their way to China for the country to catch up with the US in terms of sheer computing power, says Grunewald, drawing a comparison: If the 140,000 smuggled processors were concentrated in one location, the result would still be significantly less computing power than Elon Musk's xAI supercomputer. This consists of 200,000 of Nvidia's most advanced processors. And xAI is just one of many AI companies in the US.

Computing power is one of the most important metrics in the race for AI development. Those with more power can, for example, train better language models more quickly. And once the model is complete, it delivers answers more quickly thanks to more computing power.

For months, American politicians have sought to further curb smuggling and put even more pressure on China. The Trump administration has requested a significant budget increase from the U.S. Bureau of Industry and Security to hire more staff, so that in the future, more than one person will be monitoring the smuggling hubs to China.

In the U.S. Congress, Republicans and Democrats have jointly introduced the Chips Security Act . The law requires that chips subject to export controls be tracked. If the Bureau of Industry and Security subsequently determines that chips have made their way to China, it could take action against the relevant dealers. According to a Reuters report, American officials have already equipped certain shipments with tracking devices.

These tightening regulations could make smuggling more difficult and expensive. However, the chip black market will likely never disappear completely. As long as China doesn't produce alternatives to Nvidia chips, demand for banned chips will remain high, and the illegal trade remains a lucrative business for companies like ALX Solutions.

Smuggling of high-performance chips will therefore continue to be the rule, not the exception.

An article from the « NZZ am Sonntag »