The Biden administration is considering closing loopholes that allow Chinese companies to obtain U.S. artificial intelligence chips through overseas units, according to four people familiar with the matter. Last year, the United States unveiled new restrictions on the export of artificial intelligence chips and chipmaking tools to China in an attempt to halt its military advances, a move that rocked relations with Beijing. These rules will be tightened in the coming days. A person familiar with the matter said that measure may be included in these new restrictions.
In the first round of restrictions, the Biden administration allowed overseas subsidiaries of Chinese companies unrestricted access to the same semiconductors, meaning they could be easily smuggled into China or accessed remotely by Chinese users.
Reuters reported in June that chips banned by U.S. regulations could be purchased from suppliers in the famous Huaqiangbei Electronics Zone in the southern Chinese city of Shenzhen.
Sources said Washington was considering how to close the loophole, a move that had not previously been reported. The effort to close the loopholes shows how the Biden administration is working to cut China off from top artificial intelligence technology and how difficult it is to close every loophole in export controls.
"There is no doubt that Chinese companies are buying chips for overseas data centers," said Greg Allen, director of the Center for Strategic and International Studies, noting that Singapore is an important center for cloud computing.
The U.S. Department of Commerce declined to comment. A representative of the Chinese Embassy in Washington did not immediately respond to a request for comment. China's Ministry of Commerce has previously accused the United States of abusing export controls and called on the United States to "stop its unreasonable suppression of Chinese companies."
Experts say that although it is illegal under U.S. law to ship these artificial intelligence chips to mainland China, it is actually difficult for the United States to supervise these transactions, and employees of Chinese companies can easily and legally remotely access chips located in foreign subsidiaries.
"We don't actually know how big this problem is," said Hanna Dohmen, a research analyst at Georgetown University's Center for Security and Emerging Technologies (CSET).
A report by the International Affairs Review, an affiliate of the George Washington University School of International Affairs, said the United States has been seeking to prevent the rise of China's artificial intelligence capabilities, which could help its military develop unmanned combat systems.
China’s AI capabilities depend on access to American chips. A June 2022 report by CSET found that of the 97 artificial intelligence chips procured through Chinese military tenders during the eight-month period in 2020, almost all were designed by U.S. companies NVIDIA, Xilinx, Intel and Microsemi.
Washington has been working to close other loopholes for AI chips to enter China. In August, it told Nvidia and AMD to restrict the export of artificial intelligence chips from China to other regions, including some countries in the Middle East.
New rules for artificial intelligence chips expected to be released this month could apply these same restrictions more broadly to all companies in the market, sources said.
It’s unclear how the U.S. government will close loopholes that allow China to access U.S. cloud providers like Amazon Web Services, which give their customers access to the same artificial intelligence capabilities. But the Biden administration is also working to address the issue, sources said.
"The Chinese can obtain the same chips anywhere in the world completely legally. There are no regulations on how to obtain these chips," said Timothy Pfister, a researcher at the Center for a New American Security, a Washington think tank.