May 23, 2024

The Biden administration is contemplating closing a loophole that grants Chinese companies access to American artificial intelligence (AI) chips. 

The United States implemented restrictions on artificial intelligence chip and chip-making tool shipments to China in 2022 to thwart China’s military advancement. 

The existing restrictions will become more rigorous in the coming days following the latest move. According to sources familiar with the matter, these measures could consolidate with the forthcoming restrictions.

New Measures to Consolidate Initial Restrictions

In the initial restrictions, the Biden administration allowed overseas subsidiaries of Chinese companies unrestricted access to AI semiconductors. This policy inadvertently enabled the smuggling of AI chips into China and remote access by users based in China. 

According to a Reuters report in June, Chinese firms could acquire the chips prohibited by US regulations from vendors in Shenzhen’s renowned Huaqiangbei electronics area.

The US government’s efforts to close this loophole underscore the challenges in disconnecting China from cutting-edge AI technology. It highlights the complexities of establishing comprehensive export controls. 

Greg Allen, a Center for Strategic and International Studies director, pointed out that Chinese firms have been purchasing these chips. Artificial intelligence capabilities, critical for its military’s development of self-operating combat systems, rely heavily on access to US chips. 

These chips are used in data centers abroad, with Singapore as a significant hub for cloud computing. Curbing the situation remains complex, and it’s challenging to gauge the extent of this issue.

While it is illegal under US law to ship AI chips to mainland China, effectively policing these transactions is daunting. Moreover, China-based employees in the US can legally access the chips located at foreign subsidiaries remotely. 

The Struggle to Curb Chinese Access to AI Technology

According to a CSET report, almost all the 97 individual AI chips acquired through Chinese military tenders in 2020 were from U.S.-based companies, including Nvidia, Xilinx, Intel, and Microsemi. This underscores the critical role of US technology in China’s AI development for military applications.

Also, to halt the ascent of China’s AI capabilities, Washington has closed several loopholes that enable AI chips to flow into China. In August, it instructed Nvidia and AMD to restrict shipments of AI chips beyond China to other regions, including some Middle Eastern countries. 

Sources suggest that the new rules on AI chips expected this month will likely apply similar restrictions more broadly to all companies.

However, the issue of Chinese parties accessing US cloud providers, such as Amazon Web Services, remains less clear. These cloud providers offer customers access to the same AI capabilities. 

The Biden administration is grappling with the challenge of closing this loophole. Additionally, Timothy Fist, a fellow at the Center for a New American Security, noted that Chinese individuals can legally access these chips globally.  

Notably, there are no specific regulations governing their access. The problem lies in the evolving methods Chinese companies employ to obtain these chips and the difficulty of enforcing export controls in a global scale.  

Meanwhile, the extent to which these measures will affect the AI landscape and U.S.-China relations remains a topic of debate and ongoing scrutiny.

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