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The Biden administration is actively exploring measures to close a loophole that has allowed Chinese companies to access American artificial intelligence (AI) chips through overseas subsidiaries, according to sources familiar with the matter. This move follows the prior restrictions on AI chip exports to China, which were introduced to counter its military advancements. The existing regulations are set to be further tightened in the near future, and closing this loophole may be part of these new restrictions.
In the initial round of restrictions, the Biden administration allowed overseas subsidiaries of Chinese firms to continue accessing the same semiconductors, effectively enabling the chips to be easily transported to China or accessed remotely by users based in China. Reuters previously reported that these chips, which were prohibited by U.S. regulations, could still be obtained from vendors in the Huaqiangbei electronics area in Shenzhen, China.
Efforts to close this loophole indicate the challenges faced by the Biden administration in limiting China’s access to top AI technology, as well as the complexities involved in plugging every gap in export controls.
Greg Allen, a director at the Center for Strategic and International Studies, highlighted the issue, saying, “Chinese firms are purchasing chips for use in data centers abroad,” with Singapore being a significant hub for cloud computing.
The U.S. Commerce Department declined to comment on these developments, while the Chinese Embassy in Washington did not provide an immediate response to requests for comments. The Chinese Ministry of Commerce has previously criticized the United States for what it deemed “unreasonable suppression of Chinese companies.”
Although shipping AI chips to mainland China is illegal under U.S. law, enforcing these restrictions and monitoring transactions has proven to be challenging. Experts noted that China-based employees could legally access these chips located in foreign subsidiaries remotely.
Hanna Dohmen, a research analyst at Georgetown University’s Center for Security and Emerging Technology (CSET), stated, “We don’t actually know how big a problem this is.”
The United States has been striving to curtail the growth of China’s AI capability, particularly its role in developing unmanned combat systems for the military. China’s AI capabilities heavily rely on access to U.S.-designed chips. CSET’s report from June 2022 revealed that the majority of AI chips procured through Chinese military tenders in 2020 were designed by U.S.-based companies, including Nvidia, Xilinx, Intel, and Microsemi.
Washington has been actively working to close other loopholes that allow AI chips to enter China. In August, it directed Nvidia and AMD to limit shipments of AI chips beyond China to additional regions, including select Middle Eastern countries. Sources suggest that the new rules expected this month will likely extend these restrictions more broadly to encompass all companies in the market.
The question remains as to how the U.S. government intends to address the loophole that enables Chinese entities to access U.S. cloud providers like Amazon Web Services, which offer the same AI capabilities to their customers. Sources indicate that the Biden administration is grappling with this issue as well.
Timothy Fist, a fellow at the Washington-based think tank Center for a New American Security, pointed out, “Chinese people can completely legally access the same chips from anywhere in the world. There are no rules about how they can be accessed.”