Ever since there has been trade rules, there is always some sanction involved or another. At the present time, the highest profile sanction is the US government does not want China to have access to the best Nvidia chips which are used in AI data centers. Similar to every market there is the official market and the unofficial market, companies abide by the official market with no questions, however how does the unofficial market work?

In an article by Ana Swanson, Paul Mozur, Tripp Mickle and Keith Bradsher of the New York Times News Service, the writers showcase how the unofficial market works for AI chips.

The US has 3,000 companies on a list which are restricted from doing business with the US because they are considered a security risk, one of the names is Inspur Group.

The company is majority owned by Shandong province (in China, many provinces or what is known in the US as state have interests in companies). The company developed the world’s first pager capable of displaying Chinese characters. More than a decade ago, the Chinese military and state turned to Inspur’s servers to reduce the reliance on foreign companies.

The company has a contract with the Chinese military to make servers, this made in on the radar of the US government and it was put on an entity list meaning US firms could no longer ship to it, without a special license.

A loophole opens up, companies had be shipping to Inspur’s subsidiary called Alvres, which was not on the list.

Alvres has a research and development technology center and manufacturing facility in Fremont, California. From there it shipped chips and other products to its subsidairies around the world, who then sent some of the product to a manufacturing plant in Malaysia. The servers are sent to company called Maginfra, which has supplied high-performance computers to Chinese universities and state-owned firms, according to Chinese contracts and procurement records.

When the US blacklisted Inspur in 2023, it got a new name in the US. In China, it got a new address. The entity list applies to a specific company name and address designated by the government. Just days after it 2023 filing, Inspur registered it main building down the road. A New York Times reporter visited the address, the company had a office there, but hardly anyone worked there. The main office was in an industrial park down the road.

Magnifra imported more than $700 million of servers from Malaysia into China in a 6-month period, including 1,500 servers of high-end capabilities for AI usage, ImportGenius data shows.

In Silicon Valley, Alvres advertised AMD’s technology and was listed as an elite partner of Nvidia and sponsor of its annual conference in San Jose, California.

Linking to dividend paying stocks, rules and regulations are meant to protect companies and to enforce security regulations. Nothing Alvres is doing is illegal, for all companies use similar shell companies for their global operations. The above is just a Chinese multinational using the rules or stretching the rules to keep commerce moving. If you have investments in a company which does business outside your home country, it likely has dozens of shell companies they use.

There are more questions than answers, till the next time – to raising questions.