Chinese companies have found loopholes to sidestep United States limits on AI chips.
What’s new: Facing severe limits on U.S. exports of high-performance chips, Chinese AI firms are purchasing them through subsidiaries and using them through cloud services, the Financial Times reported.
Restrictions: In October 2022, U.S. officials blocked U.S. companies, citizens, permanent residents, and their foreign trading partners from selling chips with high processing and interconnect speeds — primarily Nvidia’s flagship A100 — to Chinese customers. The ban also prohibits sales to China of equipment and software used in semiconductor manufacturing. Japan and the Netherlands imposed similar restrictions in January.
Loopholes: Prior to the restrictions, rumors that they were coming gave companies an opportunity to stockpile chips ahead of time. The rules don’t specifically prohibit Chinese customers from using cloud-computing services, which opened a path to use the banned chips, and shell companies headquartered in other countries provide another avenue. Meanwhile, the U.S. government previously had barred some companies from buying high-tech equipment; these firms already had developed alternative sources of sensitive technology.
- AI-Galaxy, a cloud service based in Shanghai, bought chips ahead of the ban. It charges $10 per hour to access eight Nvidia A100s.
- iFlytek, a voice-recognition firm, pays other companies for access to A100 chips, several employees said. iFlytek has been barred from purchasing U.S. chips since 2019.
- SenseTime, a face recognition firm that has been blocked from U.S. chips since 2019, buys hardware through subsidiaries that aren’t subject to the U.S. rules. The company said it complies with international trade standards.
- An unnamed U.S. company offered cloud access to A100 chips to Chinese firms. The company’s legal team believes that the U.S. export controls do not limit cloud computing, one employee said.
- An executive at a Shenzhen cloud-computing provider that offers access to A100s said that many customers have approached the provider through shell companies.
Behind the news: China responded to the embargo by investing in its own chip industry. In December 2022, Beijing announced that it would pump $143 billion into domestic semiconductor production. In early 2023, however, officials slowed its investment in response to a resurgence of Covid-19.
Why it matters: U.S. efforts to restrict advanced chips come at a time of rapid progress in AI as well as increasing fears of geopolitical instability. The lack of homegrown alternatives creates a powerful incentive for Chinese companies to find ways around the restrictions.
We’re thinking: This isn’t the end of the story. U.S. officials likely will respond by tightening the laws around cloud computing, and Chinese companies will react by finding new workarounds.