People regularly attempt to smuggle expensive hardware into China. A US company sees this as a great danger, even for the security of the USA. However, Nvidia contradicts the accusations and states that the smuggling allegations are ‘tall tales’. Nevertheless, the allegations can be easily substantiated.
What lies behind the smuggling allegations? Graphics cards and processors have been very expensive for some time. In addition, in China, certain graphic chips and products are prohibited for sale. For this reason, smugglers devise various tricks to bring the products into China and sell them profitably there.
One notable operation was where smugglers hid Nvidia graphics cards among live lobsters. Others are said to have sold graphics cards worth 1 million US dollars to China on a large scale. The Chinese police and customs authorities regularly post pictures of extensive findings.
American AI company sees smuggling as a major threat to the US economy
The AI company Anthropic stated in a blog post that there is a systematic problem behind the smuggling. Furthermore, they believe that enforcing export regulations requires more resources and that the tiered system introduced with the ‘AI Diffusion Rule’ needs to be adjusted to allow countries of tier 2 better access to technology. Thus, Anthropic stated in a blog post:
Chip smuggling is a major threat: China has established sophisticated smuggling operations, with documented cases involving chips worth hundreds of millions of dollars. In some cases, smugglers have used creative methods to circumvent export controls, such as hiding processors in fake baby bumps or packaging graphic processors alongside live lobsters. Chinese companies continue to establish shell companies in third countries at a rapid pace to bypass export controls.
Anthropic additionally argues that smugglers pose a significant danger to US security.
Therefore, Anthropic is also advocating for stricter controls and enforcement of the new AI regulations. However, Nvidia does not seem to appreciate this. Stricter controls and restrictions could also threaten Nvidia’s foreign business and revenues from chip sales. Nvidia has now stated that the smuggling stories are merely ‘tall tales’.
Nvidia denies accusations, states: American companies should focus on innovations
Nvidia stated: Nvidia told the English-language magazine CNBC:
American companies should focus on innovations and face the challenge, rather than telling tall tales that large, heavy, and sensitive electronics are somehow smuggled in a ‘baby bump’ or ‘alongside live lobsters’.
Interestingly, however, the fake baby bump and the live lobsters can be easily proven: For example, a woman was arrested in China while attempting to smuggle graphic chips in a belly prosthesis. This was reported by Bloomberg.com, and the image clearly shows the prosthesis next to the smuggled chips. We reported on the smugglers who hid Nvidia graphics cards among live lobsters on MeinMMO.
Why do so many people smuggle? Despite severe penalties, smugglers keep trying to bring hardware to China. This is mainly due to the 13% VAT that must be paid in China, and the prohibitions make smuggling appear particularly lucrative.
Many smugglers likely consider it worth the risk to transport hardware through various means into the vast country in the East: Someone attempted to secretly smuggle 306 processors, but their ‘abnormal posture’ gave them away
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