A memory smuggler has detailed how they bypass export controls on high-bandwidth memory (HBM) chips by pairing them with low-performance processors that do not fall under trade restrictions, allowing the banned chips to be shipped from South Korea to China. The scheme, described to The Information, exploits a loophole in US and South Korean trade rules that only consider the performance of the server processor, not other components.
The smuggler owns a chip design firm that builds cheap, low-performing processors that are not restricted by export controls. These are then packaged with expensive HBM chips from Samsung and SK hynix, which are otherwise banned for export to China. Because the regulations only scrutinise the performance of the processor, the high-end memory chips travel under the radar.
Once the assembled devices arrive in Hong Kong, they are smuggled across the border into Shenzhen in the luggage of daily commuters. In workshops, technicians heat the boards to soften the solder, remove the valuable HBM chips, and discard the rest. Despite a high failure rate, the operation remains highly profitable due to the soaring price of HBM.
A Shenzhen-based chip broker who matches suppliers with buyers told The Information that HBM3E prices have risen sharply. "A year ago, a single HBM3E unit changed hands in China for several hundred dollars," he said. "Today it's about $4,000." With an AI graphics processing unit requiring six to eight memory chips, a broker can earn between $24,000 and $32,000 for every AI GPU.
Chinese AI labs face a memory chip bottleneck. Chinese manufacturer CXMT has begun risk production of HBM3E but is reportedly still suffering from low yields, making its chips expensive to produce and procure. Huawei, which cannot purchase HBM from Samsung or SK hynix, has told its customers that they must find their own HBM for its servers, a requirement that would further fuel demand.
The smuggler fears that South Korean and US authorities would soon clamp down on these operations. The article says Washington has been going down hard on activities like this and cites high-profile arrests, including some Super Micro executives and the CEO of a California-based tech company, while Taiwan and Malaysia have been ramping up their anti-smuggling activities.
Analysis
Why This Matters
- The loophole demonstrates a critical gap in current export control frameworks, potentially allowing advanced AI hardware to reach China despite restrictions.
- The soaring price of HBM chips highlights the enormous demand and the lengths companies will go to secure supply, driving a lucrative black market.
- If not addressed, this smuggling channel could enable China to skip domestic production bottlenecks and accelerate AI development.
Background
The United States and its allies have imposed export controls on advanced semiconductors to limit China's ability to develop artificial intelligence. The controls focus on processor performance, but the loophole exploited here pairs restricted memory with unrestricted processors. China has been investing heavily in domestic chip manufacturing but still lags in production capacity and yields.
Key Perspectives
- Smuggler: Claims to bypass trade rules by packaging banned HBM with unsanctioned processors, and expects authorities to crack down soon.
- Chip broker: Reports HBM3E prices have risen from hundreds to $4,000 per unit, with brokers earning up to $32,000 per AI GPU.
- Huawei: Informs customers they must source their own HBM, as domestic suppliers cannot meet demand, fueling the black market.
What to Watch
- Whether South Korea will follow the US, Taiwan, and Malaysia by increasing anti-smuggling enforcement.
- The progress of CXMT's HBM3E mass production and its impact on reducing China's reliance on smuggled chips.
- Possible revision of export control rules to cover components beyond the main processor.
Checked
12 claims in this story checked against 1 source: 11 supported.
Show each claim
- SupportedSmugglers exploit a trade-controls loophole to bring banned HBM from South Korea into China.Latest from Tom's Hardware: “AI chip smugglers exploit trade control loophole to bring banned HBM from South Korea into China”
- SupportedHBM3E prices in China rose from several hundred dollars a unit a year ago to about $4,000.Latest from Tom's Hardware: ““A year ago, a single HBM3E unit changed hands in China for several hundred dollars,” he tells the publication. “Today it’s about $4,000.””
- SupportedThe smuggler described the scheme to The Information.Latest from Tom's Hardware: “According to The Information , the smuggler owns a chip design firm”
- SupportedThe rules only assess the server processor’s performance, not the other components attached to it.Latest from Tom's Hardware: “because export control rules only look at the performance of the server processor and not at the other components attached to it”
- Reports differThe smuggler’s low-performing processors are not restricted by export controls.Latest from Tom's Hardware: “the smuggler owns a chip design firm that build cheap, low-performing processors that fall under the U.S. and South Korea’s export controls.”
- SupportedThe processors are paired with HBM from Samsung and SK hynix, which is banned for export to China.Latest from Tom's Hardware: “They are then paired with expensive HBM from Samsung and SK hynix, that, on their own, are banned for export to China.”
- SupportedThe assembled devices are smuggled from Hong Kong into Shenzhen in commuters’ luggage.Latest from Tom's Hardware: “Once the mediocre processors with high-end memory chips land in Hong Kong and are smuggled across the border into Shenzhen in the luggage of commuters that cross between the two regions daily”
- SupportedTechnicians heat the boards to soften the solder, remove the memory chips and discard the other components.Latest from Tom's Hardware: “they end up in workshops where technicians heat up the boards to soften the solder, gingerly lift the crucial memory chips, and discard the rest of the components.”
- SupportedThe Shenzhen-based broker said: “A year ago, a single HBM3E unit changed hands in China for several hundred dollars. Today it's about $4,000.”Latest from Tom's Hardware: ““A year ago, a single HBM3E unit changed hands in China for several hundred dollars,” he tells the publication. “Today it’s about $4,000.””
- SupportedAn AI GPU requires six to eight memory chips, allowing a broker to earn $24,000 to $32,000 per GPU.Latest from Tom's Hardware: “With an AI chip requiring six to eight high-end memory chips, that means the broker is raking in $24,000 to $32,000 for every AI GPU.”
- SupportedCXMT has begun risk production of HBM3E and is reportedly experiencing low yields, making its chips expensive to produce and procure.Latest from Tom's Hardware: “While Chinese memory manufacturer CXMT has already begun risk production of HBM3E and is expected to mass produce them by the end of this year , it’s still reportedly suffering from low yield, which makes their chips expensive to produce and procure.”
- SupportedHuawei, unable to buy HBM from Samsung or SK hynix, has told customers to source the HBM for its servers themselves.Latest from Tom's Hardware: “since the company cannot purchase HBM from Samsung and SK hynix, and Chinese memory manufacturers do not have the capacity to supply all its chip demands, Huawei told customers that they have to find the HBM that these servers need themselves.”
