EXCLUSIVE: Biden is looking to add restrictions on Chinese companies’ AI chips abroad

Oct 12 (Reuters) – The Biden administration is considering closing a loophole that allows Chinese companies to access U.S. artificial intelligence chips through units located abroad, according to four people familiar with the matter.

Last year, the United States shook its relations with Beijing when it revealed new restrictions on shipments of artificial intelligence chips and chip-making tools to China, seeking to thwart its military advance. These rules are scheduled to be tightened in the coming days. A person familiar with the situation said this measure could be included in those new restrictions.

In the first round of restrictions, the Biden administration left affiliates of Chinese companies abroad unfettered access to the same semiconductors, meaning they could easily be smuggled into China or accessed remotely by users based in China.

Reuters reported in June that the same chips banned under US regulations could be purchased from vendors in the popular Huaqiangbei electronics district in the southern Chinese city of Shenzhen.

The sources said that Washington is now studying ways to close the loophole, a step that has not been announced before.

The effort to close the loophole shows how the Biden administration is struggling to isolate China from the best AI technology and how difficult it will be to close every gap in export controls.

“Certainly, Chinese companies are buying chips for use in data centers abroad,” said Greg Allen, director of the Center for Strategic and International Studies, noting that Singapore is a major center for cloud computing.

The Ministry of Commerce declined to comment. A representative of the Chinese Embassy in Washington did not immediately respond to a request for comment. The Chinese Ministry of Commerce had previously accused the United States of abusing export controls and called on it to “stop its unreasonable suppression of Chinese companies.”

Although it would be illegal under US law to ship these AI chips to mainland China, it is very difficult for the United States to monitor these transactions, experts said, noting that employees based in China could legally access existing chips. In foreign subsidiaries remotely OK.

“We don’t actually know the scale of this problem,” said Hannah Dohmin, a research analyst at Georgetown University’s Center for Security and Emerging Technology (CSET).

The United States is seeking to halt the rise of China’s artificial intelligence capability, which is helping its military develop unmanned combat systems, according to a report published in the Journal of International Affairs, affiliated with the George Washington University School of Foreign Affairs.

China’s ability in artificial intelligence depends on its access to American chips. CSET found in a June 2022 report that of 97 individual AI chips purchased via Chinese military tenders over an 8-month period in 2020, nearly all were designed by US-based companies Nvidia, Xilinx, Intel, and Microsemi.

Washington is working to close other loopholes that allow artificial intelligence chips to enter China. In August, it asked Nvidia and AMD to restrict shipments of AI chips outside China to other regions, including some countries in the Middle East.

New rules related to AI chips expected this month are likely to apply the same restrictions more broadly to all companies in the market, the sources said.

It is unclear how the US government might close the loophole that allows Chinese parties to access US cloud service providers such as Amazon Web Services, which gives its customers access to the same artificial intelligence capabilities. But sources say the Biden administration is grappling with the issue as well.

“Chinese people can legally access the same chips from anywhere in the world,” said Timothy Feist, a fellow at the Washington-based think tank Center for a New American Security. “There are no rules about how to access them.”

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