A deliberately mediocre processor is helping smugglers move restricted AI memory into China

One South Korean smuggling operation described by The Information begins with an apparently ordinary chip-design company. Its processors are deliberately uncompetitive: their purpose is to justify orders for advanced high-bandwidth memory from Samsung or SK Hynix.

Specialist packagers attach the cheap processor and valuable HBM to the same substrate. The package is declared under the processor’s customs classification, routed through Hong Kong and carried into mainland China by couriers, commuters or cars. Workshops then remove the memory and pass it to brokers in Shenzhen. The scheme exploits a seam in controls that restrict standalone HBM but treat integrated packages differently—and adds false declarations and physical disassembly to turn that seam into a supply chain.

The economics reveal why it exists. Samsung and SK Hynix control more than 80% of the HBM market, while Chinese producers remain years behind and struggle with yields. A unit of HBM3E that cost several hundred dollars in China a year ago now changes hands for about $4,000. Six to eight units are needed for one AI-chip package, adding $24,000–$32,000 before the processor, server and electricity. Huawei has reportedly raised the suggested price of its Ascend 950DT above 250,000 yuan, roughly $37,000, even though its raw speed is about half that of Nvidia’s older H100.

This makes memory policy as important as processor policy. Huawei can design a capable domestic accelerator and Chinese labs can optimize models for it, but neither substitutes for the bandwidth required to keep the chip fed with data.

Enforcement is intensifying. South Korean customs says it uncovered 770.3bn won of trade-security violations by the end of May, already above all of 2025; 243bn won involved illegal strategic-goods exports. Yet the route’s modularity is the problem: design firms, packagers, distributors and couriers each handle one plausible fragment. Controls written around individual components have to follow the assembled system—and its true end user—without blocking legitimate chip trade.