China’s AI chip gray market threatens US export restrictions
Despite tighter controls, Nvidia’s advanced chips continue flowing into China through third-party countries.
The Trump administration is currently considering significantly tightening the restrictions on AI chip exports to China that were imposed by the Biden administration. However, if it decides to proceed, it will face another major challenge: a thriving gray market for Nvidia’s highly sought-after chips. These chips are being routed to China through third-party countries and are selling for nearly twice their official market price. Without closing this loophole, the effectiveness of the restrictions will be severely undermined.
In October 2022, the Biden administration introduced initial restrictions on the export of high-performance AI chips to China, aiming to limit the country’s ability to develop advanced AI systems. Over the past two years, the restrictions have been tightened several times, while China has responded with its own countermeasures, particularly by restricting the export of key elements needed for high-performance chip production. Last week, reports emerged that the Trump administration is considering further tightening these restrictions, including banning Nvidia from selling AI chips to China that were specifically designed to comply with existing regulations.
However, the effectiveness of these restrictions is being overshadowed by the rapid expansion of a gray market in China for Nvidia’s AI chips. According to a report by The Wall Street Journal, traders in China are selling Nvidia’s Blackwell chip systems, which they acquire through intermediaries in neighboring countries, sometimes with delivery times as short as six weeks.
Payments held in escrow
James Luo, a trader in Shenzhen, told The Wall Street Journal that in January, he received an order from a Shanghai-based customer for a dozen Blackwell servers. The customer deposited approximately $3 million into an escrow account as payment for the deal. Luo said he expects to deliver the servers within two weeks. Luo and other Chinese traders source AI servers through companies such as data center operators and official Nvidia customers in Vietnam, Malaysia, and Taiwan. These companies purchase the servers for their own use but later resell part of their inventory to buyers in China.
The price of a Blackwell server with eight AI processors can exceed $600,000 on the gray market—nearly twice the price of similar servers sold through official channels. Blackwell is Nvidia’s most advanced AI product, but other restricted chips are in equally high, if not greater, demand. According to traders, most orders in China are for Nvidia’s H200 chips. A server equipped with eight H200 chips sells in China for about $250,000, a relatively modest premium over the price in unrestricted markets.
Hundreds of servers shipped each month
Some dealers claim they can deliver a few dozen servers immediately and hundreds within a month. One dealer posted a photo on social media showing hundreds of sealed boxes of H200 servers ready to ship from a warehouse in China, while another claimed to have similar stock on hand. Since December, at least two universities in Shenzhen and Wuhan have received shipments of six AI servers containing restricted chips, according to documents reviewed by The Wall Street Journal.
Nvidia has attempted to curb these unauthorized sales by implementing stricter identity verification policies and conducting frequent spot checks to ensure that its products are not being resold to China. Authorities in Singapore and Taiwan have also stepped up inspections, making it harder to complete large transactions. However, according to merchants, sellers have found ways to bypass these measures, including falsifying the unique identification numbers of restricted systems by stamping them onto older hardware.
Nvidia told The Wall Street Journal that it investigates reports of unauthorized sales. “Customers of sophisticated AI equipment want support and service that anonymous dealers claiming to have Blackwell systems cannot provide,” the company stated. While this is true, the argument loses weight when applied to buyers who have no other way to access the systems they need.
China turns to H20 chips
The gray market alone cannot fully meet China’s AI computing needs. U.S.-based AI companies are expanding their data centers with hundreds or even thousands of AI chips—far more than Chinese vendors can supply through unofficial channels. However, Chinese companies are using alternative strategies, including relying on Nvidia’s H20 chip (the most powerful AI chip the company is still allowed to export to China). Purchases of H20 chips have surged in response to reports that the Trump administration may impose tighter restrictions. In addition, Chinese firms are adopting model-training techniques that require significantly less computing power, such as those used by DeepSeek to train its groundbreaking R1 model.
Despite these adaptations, the scale of the gray market underscores that Nvidia’s more advanced chips remain crucial to China’s AI sector. These components play a vital role in local companies’ efforts to develop cutting-edge AI models. If the Trump administration wants its export restrictions to be truly effective, it must first address the gray market that continues to supply China with banned chips.
