Nvidia smuggling case tests China's chip self-sufficiency push

The arrest of Greg Lui, 38, owner of Earthmade Computer Inc, is the newest and loudest reminder that Washington is still trying to starve China's AI buildout of American silicon. But it lands at an awkward moment. China's own figures suggest the country is getting better at making, buying and routing the chips it needs, and that the enforcement problem is getting harder, not easier.

Prosecutors say Lui ordered servers packed with Nvidia A100, H100, PNY GeForce RTX 4090 and GeForce RTX 5090 GPUs through his US company. The machines went to Malaysia and Singapore, and companies there forwarded them to China. Neither Malaysia nor Singapore requires a Commerce Department licence for those shipments, which is the whole point of the route. The court documents describe 92 servers ordered from San Francisco International Airport to Kuala Lumpur, with the onward consignee listed as a Chinese customer in Hong Kong.

The scheme ran, according to the indictment, from around October 2023 until at least 12 August 2026. Prosecutors claim Lui received more than $176 million from two Malaysian transshipment companies and brokered almost $300 million in Nvidia kit. He faces one count of conspiracy to violate the Export Control Reform Act and the Export Administration Regulations, one count of outbound smuggling and one count of conspiracy to commit money laundering. If convicted on all counts, he could face up to 20 years, Tom's Hardware reported on 2 October.

Enforcement versus self-sufficiency

"SI is the defining technology of the era," assistant attorney general for national security John A. Eisenberg said in the DOJ statement. "The National Security Division will protect the American advantage in the chips that power this technology." First Assistant US Attorney Bill Essayli put it more plainly: the defendant allegedly used false paperwork and third countries to move more than $300 million in export-controlled servers.

That is the enforcement story, and it is a familiar one. What is newer is how much China's domestic supply chain has changed underneath it. Huawei's rotating chairman said this week that the company's Ascend chips have surpassed Nvidia in China market share, according to Geopolitechs. The claim is Huawei's own and not independently audited, but it points in the same direction as the hard data.

China's generative AI user base passed 700 million at the end of June, up 16 per cent from 602 million at the end of 2025, according to the China Internet Network Information Centre, as reported by the South China Morning Post on 29 September. More users mean more inference demand. Inference is the workload Chinese chipmakers are best placed to serve.

Beijing is also writing the industrial policy to match. On 28 September, the Ministry of Industry and Information Technology released a five-year battery plan, dated 14 September and jointly issued by seven agencies, that targets initial large-scale use of all-solid-state batteries by 2030 and long-life lithium batteries at 15,000 charge-discharge cycles. The same ministry's ICT plan, released around 2 October, sets a target of 1 million 50G-PON ports deployed by 2030, Light Reading reported.

"No one is willing to spend money on production capacity or R&D investment in PON-related technologies," said Lin Tao, marketing director at components supplier Accelink Technologies. "Basically, everyone is going all in on AI."

That quote captures the internal tension in China's own buildout. AI is creating the demand for new infrastructure while draining the capital and capacity needed to supply it. Zhang Dechao, deputy head of basic network research at the China Mobile Research Institute, said token operations had "completely restructured the traffic model of optical networks", with uplink traffic now accounting for 40 to 50 per cent of network traffic. He cited data projecting that by 2035 AI inference traffic will account for 25 per cent of total traffic and drive over 63 per cent growth in overall network traffic.

Money, talent and the parts in between

The capital side is just as uneven. ByteDance accounts for roughly one fifth of China's delivered data centre capacity, making it the country's largest tenant, according to estimates by research firm SemiAnalysis reported by the SCMP on 28 September. The firm tracked more than 1,000 facilities operated by over 60 companies. Alibaba, Tencent and Baidu deployed a combined $20 billion in capital expenditure in the second quarter, more than double a year earlier, and all three posted negative free cash flow in the same quarter for the first time on record.

Talent has shifted too. China employed 41 per cent of the world's leading AI researchers last year, ahead of the US at 34 per cent, according to a Carnegie China study reported by the SCMP on 25 September. In 2022 the US led with 46 per cent against China's 27 per cent. The reversal is recent and sharp.

None of this adds up to independence. Nvidia's own position is contested but not erased: Ars Technica reported on 28 September that China's Ministry of Industry and Information Technology asked Alibaba and ByteDance to share plans to buy Nvidia's RTX Pro 5500 chips, with expectations they could be put into servers for AI models. That reporting came from sources familiar with the talks cited by The Information. Nvidia CEO Jensen Huang has blamed US export controls for cutting Nvidia's share of China's advanced AI chip market from about 95 per cent to zero, Ars Technica reported.

The politics around that are getting stranger. President Trump initially tightened controls and considered breaking Nvidia up, then met Huang at Mar-a-Lago and lifted export controls on H200 chips, which China eventually allowed to be sold to some firms. Stephen Witt, author of The Thinking Machine, told NPR that Trump's recent claims that AI destroying humanity is a "hoax" are "exactly Jensen's talking points". "Jensen is now the president's most influential adviser on technology issues," Witt said, according to Ars Technica.

The demand problem underneath

Self-sufficiency is also a demand story, and China's consumer market is cooling. Retail sales of new energy vehicles fell 20 per cent year on year in the first 27 days of September, to 827,000 units, according to the China Passenger Car Association, as reported by CnEVPost. Overall passenger car retail sales fell 29 per cent to 1.258 million. NEVs still took 65.7 per cent of retail sales, but the direction is down. That matters for the battery and chip supply chains being built to serve them.

Foreign carmakers are adapting rather than retreating. Hyundai launched its China-designed Ioniq V electric sedan on 29 September from a limited-time 99,900 yuan ($14,820), with CATL batteries and Momenta driver assistance software, according to CnEVPost. SAIC Volkswagen opened pre-sales for its ID. ERA 8X extended-range SUV on 28 September ahead of an October 12 launch, also using Momenta technology. Tesla, meanwhile, gave every Model 3 in China a 16-inch screen and up to 2.2 kW of AC power export from 1 October, while the US Model 3 still lists a 15.4-inch display, Electrek reported.

Then there is the money flowing through Hong Kong. Shenzhen-listed PCB maker Suzhou Dongshan Precision has cleared its listing hearing and is moving toward a Hong Kong share sale that could raise up to $3 billion, people familiar with the matter told the SCMP on 30 September. The company makes printed circuit boards, optical transceivers and other components used in smartphones, cars and IoT devices. It received China Securities Regulatory Commission approval to issue up to 234 million shares.

And Apple, for all the talk of decoupling, just had its best China week in a while. Sales of the iPhone 18 Pro models in their first three days after launching on 18 September were 12 per cent higher than the iPhone 17 Pro line-up's entire first week last year, according to Counterpoint Research data reported by the SCMP on 30 September. Apple took 33 per cent of China's smartphone market for the week of 14 to 20 September.

Two things can be true at once. China is building real capacity in chips, batteries and AI infrastructure, and it still depends on the outside world for the most advanced parts. The Lui case is what happens in the gap between those two facts, and neither the arrest nor the indictment closes it.