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According to a new report from DigiTimes Asia, underground freelance vendors in China are attracting the attention of major companies. Amid the semiconductor shortage, major automakers are being forced to find components through unusual channels.

The report tracks 32-year-old Wang, who lives and works from a small apartment in Shenzhen, China’s tech capital. She receives coded messages that detail available chips from vendors who use Wang to connect them with buyers.

This grey market has become a haven for finding chips that are hard to find elsewhere. Semiconductors are valuable products in this market. However, it is an illegitimate industry that is also full of second-hand or out-of-date chips. Even so, a quality chip can sell for up to 500 times its original price.

Chinese car manufacturers are increasingly turning to the underground market to find the components they need. One representative believes the semiconductor crisis is still happening:

“Recent US sanctions have introduced another round of panic to the market and disturbed the supply of both entry level and more advanced chips,” China Passenger Car Association secretary general Cui Dongshu says. “Distribution channels and the prices of chips are messed up.”

Dangerous Market

Bloomberg News interviewed people around the world where these grey markets are popping up. However, because so many low-quality chips are being sold, at best the quality of vehicles will decrease and at worst people may be in danger. For example, an old or fake chip could cause breaking or acceleration issues in cars.

Robert Bosch GmbH, a major auto-parts supplier in Germany, says he gets requests from Chinese car manufacturers asking to handle chips that came from the grey market. While Bosch turned down these requests, there is a possibility other suppliers may not.

So, why are these operations not shut down? Well, precisely because of their grey market nature. These are legitimate companies that pay taxes. However, they are not necessarily permitted to buy and sell faulty or fake products.

Wang says the “conventional system whereby auto suppliers place an order through an authorized agent and wait for distribution from an original chipmaker no longer works.”

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