How China bypasses US chip ban
How Chinese AI Firms Dodge US Chip Bans: Flying Hard Drives, Rented Servers & Shadow Networks
By Rahul
16 June 2025
The U.S. government’s **sweeping semiconductor bans** have severely restricted China’s access to **cutting-edge AI chips** like NVIDIA’s H100 and A100 GPUs. Yet, Chinese tech giants like **Alibaba, Tencent, and Huawei** continue advancing their AI ambitions—using **ingenious (and sometimes bizarre) workarounds**.
From **suitcases stuffed with hard drives** to **shadowy server rentals**, this investigative report reveals:
✔ **How Chinese firms bypass U.S. export controls**
✔ **The role of third-party intermediaries in Dubai, Singapore, and Vietnam**
✔ **Why rented cloud servers are the new battleground**
✔ **What the U.S. is doing to clamp down further**
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## **1. The US Chip Ban: What’s Restricted?**
Since 2022, the U.S. has **blocked the sale** of:
- **NVIDIA’s high-end AI GPUs** (A100, H100, L40S).
- **ASML’s EUV lithography machines** (used to make advanced chips).
- **AMD’s MI300 accelerators**.
**Impact:** Chinese AI labs lost access to **90% of the world’s top-tier AI training hardware**.
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## **2. How Chinese Firms Are Dodging the Ban**
### **A. The “Flying Hard Drive” Smuggle Tactic**
- **How It Works:**
1. Chinese firms **rent NVIDIA GPUs** from U.S./European cloud providers (AWS, Lambda Labs).
2. Data is processed remotely, then **downloaded onto portable SSDs**.
3. Couriers **fly the drives to China** (often via Dubai/Singapore to avoid scrutiny).
- **Example:** A **Huawei-linked firm** allegedly moved **20PB of AI training data** this way in 2023.
### **B. Shadow Server Rentals via Shell Companies**
- **The Loophole:** U.S. bans **sales**, not **cloud rentals**.
- **Workaround:**
- Chinese firms use **Singaporean/Vietnamese shell companies** to rent GPU servers.
- Data is **VPN-tunneled back to China**.
- **Major Players:**
- **Lambda Labs** (U.S.) – Reportedly **10% of its H100 rentals** go to Chinese proxies.
- **RunPod** – Banned Chinese IPs, but users bypass with **virtual private servers (VPS)**.
### **C. Chip “Recycling” from Old Servers**
- **Salvage Market:** Used **A100 chips** (from decommissioned data centers) sell for **2x MSRP** in Shenzhen.
- **How?**
- Brokers buy **second-hand servers** from the U.S./EU.
- Chips are **desoldered and repackaged** in China.
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## **3. The Role of Third-Party Intermediaries**
| **Hub** | **Activity** | **Example** |
|---------|------------|------------|
| **Dubai** | Transshipment for hard drives/GPUs | NVIDIA chips relabeled as "industrial equipment" |
| **Singapore** | Shell companies for cloud rentals | Alibaba-linked firms rent via Singaporean fronts |
| **Vietnam** | Chip smuggling via "electronics recycling" | Used GPUs shipped as "e-waste" |
**Why These Countries?**
- **Lax customs checks** vs. direct U.S.-China routes.
- **Neutral trade policies** (Dubai doesn’t enforce U.S. bans).
---
## **4. The Cloud Computing Loophole**
Chinese firms exploit **U.S. cloud providers** by:
✔ **Renting short-term instances** (training AI in bursts).
✔ **Masking traffic** (using VPNs and encrypted tunnels).
✔ **Paying via cryptocurrency** (untraceable transactions).
**Top Targets:**
- **AWS P4d instances** (powered by NVIDIA A100).
- **Google Cloud A3 VMs** (H100 GPUs).
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## **5. How the U.S. Is Fighting Back**
### **A. Tighter Cloud Restrictions (Oct 2023)**
- **Biden admin now requires cloud providers** to **vet foreign customers**.
- **Lambda Labs banned Chinese-linked accounts** in 2024.
### **B. Chip-Level Kill Switches**
- **NVIDIA’s new H20 China-only GPU** has **remote disable** if smuggled.
### **C. Diplomatic Pressure**
- **U.S. lobbying UAE/Singapore** to crack down on transshipments.
---
## **6. Can China Sustain AI Growth Without US Chips?**
### **Domestic Alternatives (Still Lagging)**
- **Huawei Ascend 910B** – **50% slower than NVIDIA A100**.
- **Biren BR100** – Banned after TSMC stopped manufacturing it.
### **Long-Term Strategy:**
- **Ramp up SMIC’s 7nm chip production** (low yields, but improving).
- **Focus on algorithmic efficiency** (smaller, optimized AI models).
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## **7. What’s Next? A Cat-and-Mouse Game**
- **U.S. may blacklist more Chinese cloud firms** (like Alibaba Cloud).
- **China could retaliate** with rare earth mineral export bans.
- **New smuggling routes** likely to emerge (Africa, Central Asia).
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## **8. Key Takeaways**
✔ **China’s AI industry is resilient** but **heavily reliant on loopholes**.
✔ **The U.S. is slowly closing gaps**, but enforcement remains spotty.
✔ **A full decoupling is impossible**—global supply chains are too intertwined.
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