Despite strict U.S. export controls aimed at restricting China’s access to advanced artificial intelligence (AI) chips, a growing black market is allowing Chinese companies to sidestep these restrictions. This underground trade network, often referred to as the “shadow circuit,” is fueling China’s technological advancements and raising concerns about the effectiveness of American sanctions.
How China Is Bypassing U.S. Restrictions
Chinese firms have found ways to acquire Nvidia’s high-performance AI chips, including the latest Blackwell series, through third-party sellers in countries with fewer trade restrictions. Many of these chips are purchased in markets like Singapore or Malaysia and then resold to Chinese buyers at inflated prices, effectively dodging U.S. sanctions.
Investigations have also revealed that servers used in fraudulent activities in Singapore—which may contain Nvidia chips—were originally supplied by Dell and Super Micro Computer to Singapore-based firms before being shipped to Malaysia. Authorities are now probing whether Malaysia was the final destination or merely a stop along the smuggling route.
Underground Networks and Hidden Supply Chains
The emergence of “shadow networks” has further complicated efforts to enforce trade restrictions. One shocking discovery was that chips manufactured by Taiwan Semiconductor Manufacturing Company (TSMC) were found in Huawei products, despite restrictions that were meant to cut off the company’s access to advanced technology. This suggests that hidden supply chains are still funneling restricted components to Chinese firms, challenging the effectiveness of U.S. policies.
U.S. and Industry Leaders Respond
The persistence of these black-market activities has prompted U.S. officials to push for tighter enforcement of export controls. Washington is urging its allies to strengthen chip export restrictions, especially as Chinese companies like DeepSeek continue to develop AI models that could rival American technology.
However, some industry leaders are warning that these measures could backfire. Microsoft’s President Brad Smith has cautioned that overly strict AI chip export controls could alienate U.S. allies and push them toward China’s technology sector instead—a move that could weaken America’s influence in the global AI race.
China’s AI Push Continues
Despite U.S. efforts, China is making rapid progress in AI development. Chinese firms are closing the technology gap, unveiling AI models that match leading U.S. open-source systems. With an active black market and secretive supply chains still feeding China’s AI ambitions, it’s clear that U.S. sanctions alone may not be enough to halt China’s technological rise.
As this high-stakes game continues, the U.S. faces a tough challenge: finding ways to prevent its most advanced technology from falling into Chinese hands without isolating its own allies and damaging global trade relations.
