China's Surging Demand for Banned Nvidia AI Chips

The Rise of a Shadow Market: Repairing Banned Nvidia AI Chips in China

In an unexpected twist, a growing demand for repairing advanced Nvidia artificial intelligence chipsets has emerged in China, despite U.S. restrictions on their export. These chips, which are not supposed to be available in the country, have found their way into the hands of tech-savvy entrepreneurs who now offer repair services. This niche market is thriving, with several small companies stepping in to meet the needs of users who rely on these powerful GPUs for various applications.

The Growing Repair Industry

Around a dozen boutique companies now provide repair services, according to two firms based in Shenzhen. These companies primarily focus on fixing Nvidia's H100 graphics processing units (GPUs), as well as A100 GPUs and other related chips. The H100 was banned from sale in China in September 2022 by U.S. authorities, aiming to curb Chinese technological advancements, especially those that could benefit its military. Similarly, the A100 was also restricted at the same time, after being on the market for over two years.

A co-owner of a firm that has been fixing Nvidia's gaming GPUs for 15 years mentioned that there is significant repair demand. The business has grown so much that the company created a new division to handle these orders, repairing up to 500 Nvidia AI chips per month. Their facilities include a room capable of housing 256 servers, simulating customers' data center environments for testing and validating repairs.

Smuggling Concerns and Legislative Responses

The rapid growth of this repair industry suggests that there has been a considerable amount of smuggling of Nvidia chipsets into China. Government and military entities have reportedly made purchases of these banned AI chips. This has raised concerns among lawmakers, prompting both Republican and Democratic representatives to introduce bills aimed at tracking chipsets to verify their locations after sale. The Trump administration has also supported this idea.

Despite the challenges, the demand for Nvidia's advanced GPUs remains high, even with the availability of less powerful products from Chinese tech giants like Huawei. While buying, selling, and repairing Nvidia GPUs is not illegal in China, sources for this article were cautious about drawing attention from either U.S. or Chinese authorities and chose to remain anonymous.

Challenges in Repair and Replacement

Nvidia cannot legally provide repair or replacement parts for restricted products in China. In contrast, if an Nvidia GPU in another country has a defect and is under warranty, the company typically replaces it. An Nvidia spokesperson emphasized that only the company and authorized partners can provide the necessary service and support, highlighting that using restricted products without approved hardware, software, and technical support is not viable.

The Future of Chip Usage in China

Although Nvidia has recently been allowed to resume sales of its H20 AI chipset, specifically designed for China to comply with U.S. restrictions, switching to H20 may not be a straightforward option for Chinese entities. The cost of one H20 server with eight GPUs inside is expected to exceed 1 million yuan ($139,400). While H20 chipsets have increased memory bandwidth and are suitable for AI inference work, firms involved in training large language models might still prefer the more powerful H100 chipsets.

Industry sources indicate that some H100 and A100 GPUs in China have been operating continuously for years, leading to higher failure rates. Depending on usage and maintenance, an Nvidia GPU typically lasts between two to five years before requiring repairs. One repair service charges between 10,000 yuan and 20,000 yuan ($1,400 to $2,800) per GPU, depending on the complexity of the issue.

Another Shenzhen-based repair provider, which transitioned from GPU rentals to repairs this year, can fix up to 200 Nvidia AI chips each month, charging about 10% of the original selling price per repair. Services include software testing, fan repair, diagnostics and repair of printed circuit boards and GPU memory, as well as replacing broken parts.

Ongoing Demand for High-End Chips

Smuggling of high-end Nvidia chips continues, with traders reporting a shift in customer demand toward the top-of-the-line B200 chips. These chips, which Nvidia began shipping to other countries in larger quantities this year, are highly sought after. A server with eight B200 GPUs costs more than 3 million yuan in China.