Biden Administration Considers Closing Loophole in AI Chip Access for Chinese Companies
Oct 12 (Reuters) – The Biden administration is reportedly exploring the closure of a loophole that allows Chinese companies to gain access to American artificial intelligence (AI) chips through overseas units, according to sources familiar with the matter.
Last year, the United States imposed restrictions on the shipments of AI chips and chipmaking tools to China, in an effort to impede its military advancements. These rules are expected to be further tightened in the coming days, with the closure of the mentioned loophole being a potential inclusion.
Initially, the Biden administration left overseas subsidiaries of Chinese companies with unrestricted access to the same semiconductors, enabling them to be easily smuggled into China or remotely accessed by users based there.
Back in June, Reuters reported that the chips prohibited by U.S. regulations could be acquired from vendors in Shenzhen’s renowned Huaqiangbei electronics area.
Sources have revealed that Washington is now contemplating ways to address the loophole, underscoring the challenges the Biden administration faces in curtailing China’s access to key AI technology while trying to close every export control gap.
“Absolutely, Chinese firms are purchasing chips for use in data centers abroad,” noted Greg Allen, a director at the Center for Strategic and International Studies, highlighting Singapore as a major hub for cloud computing.
The Commerce Department declined to comment on the matter, while the Chinese Embassy in Washington did not provide an immediate response to a request for comment. China’s Ministry of Commerce has previously accused the U.S. of abusing export controls and called for an end to the “unreasonable suppression of Chinese companies.”
While it would be illegal under U.S. law to ship AI chips to mainland China, detecting and regulating such transactions is proving to be challenging. China-based employees can legally access chips located at foreign subsidiaries remotely.
“We don’t actually know how big a problem this is,” said Hanna Dohmen, a research analyst at Georgetown University’s Center for Security and Emerging Technology (CSET).
Halting China’s rise in artificial intelligence capabilities, which aids in the development of unmanned combat systems, has been a priority for the United States. A report in The International Affairs Review, affiliated with George Washington University’s School of International Affairs, highlighted how China’s AI capabilities heavily rely on their access to U.S. chips.
According to a June 2022 report by CSET, out of 97 AI chips acquired through Chinese military tenders over an 8-month period in 2020, the majority were designed by U.S.-based companies, including Nvidia, Xilinx, Intel, and Microsemi.
Efforts have been made by Washington to close other loopholes that allow AI chips to enter China. In August, Nvidia and AMD were directed to restrict shipments of AI chips not only to China but also to other regions, including certain Middle Eastern countries.
Sources suggest that the new rules expected to be introduced this month will likely broaden the application of these restrictions to all companies operating in the AI chip market.
The U.S. government is still grappling with the challenge of closing the loophole that allows Chinese parties to access U.S. cloud providers like Amazon Web Services, which offer the same AI capabilities to their customers.
“Chinese persons can completely legally access the same chips from anywhere in the world. There are no rules about how they can be accessed,” stated Timothy Fist, a fellow at the Washington-based think tank Center for a New American Security.
Reporting by Alexandra Alper and Karen Freifeld; editing by Chris Sanders and Anna Driver