Smugglers Exploit Export Loopholes to Supply Restricted AI Memory to China
Illicit networks bypass US restrictions by harvesting high-bandwidth memory from low-end processor packages.
1Exploiting Regulatory Loopholes
Smugglers are bypassing US export controls by bonding restricted high-bandwidth memory (HBM) to low-end server processors. Since December 2024 rules classify chip packages based on processor performance rather than memory, these underpowered units fall below restricted thresholds. This allows premium HBM to enter China under the guise of ordinary hardware.
2The Smuggling Mechanism
Brokers design cheap, underpowered processors to justify ordering high-tier HBM from global suppliers. Specialist packaging firms in Taiwan, South Korea, and Southeast Asia bond the components. Once shipped to Hong Kong, the packages are smuggled into mainland China via informal couriers, luggage, and car boots to avoid customs detection.
3Thermal Extraction Process
Inside Chinese workshops, technicians heat the imported packages until the solder softens to harvest the HBM stacks. The inexpensive processors are discarded as waste. This process is technically difficult, as improper heating can warp or crack the delicate memory stacks, yet the high profit margins compensate for these losses.
4Surging Market Prices
The value of HBM3E memory has skyrocketed due to strict supply constraints. A single unit that cost a few hundred dollars a year ago now trades for approximately $4,000. With each AI chip requiring six to eight stacks, the memory cost alone can reach $32,000 per unit, excluding other essential components.
5Huawei Supply Chain Challenges
Huawei is reportedly navigating these restrictions for its Ascend 960DT flagship chip by relying on Samsung and SK Hynix memory. Because domestic Chinese production remains insufficient, Huawei has allegedly asked customers to source memory independently. Both Samsung and SK Hynix maintain they strictly comply with all international export regulations.
6Wider Enforcement Issues
The smuggling of HBM is part of a broader challenge in enforcing hardware restrictions. Security firm Lava previously identified 32 restricted NVIDIA B300 units operating within China Telecom’s network. These units, each containing 288GB of HBM3E, were accessible online, highlighting the difficulty of monitoring advanced hardware once it crosses borders.
7Domestic Production Limitations
China’s domestic memory manufacturer, CXMT, has begun developing HBM3E but faces significant challenges with low yields. As global memory shortages are expected to persist until 2030, the reliance on illicit supply chains remains a critical factor for Chinese firms attempting to maintain their competitive edge in advanced AI system development.
8Verification and Legal Context
These allegations rely on reports from brokers and industry insiders rather than official court records or government seizures. While US prosecutors are actively pursuing AI server smuggling cases, no agency has publicly confirmed the specific HBM operation. The situation underscores the ongoing tension between rapid technological advancement and restrictive trade policies.