The Biden administration is contemplating measures to plug a loophole that has been enabling Chinese firms to acquire U.S. artificial intelligence (AI) chips through overseas channels, as reported by Reuters on October 13, 2023. This move underscores Washington’s ongoing effort to curb China’s burgeoning AI capabilities which are significantly anchored on U.S. chip technology.

Last year, the U.S. administration introduced restrictions on the shipment of AI chips and chip-making tools to China, aiming to impede its military advancements. The present consideration to broaden the scope of restrictions reveals the administration’s struggle to sever China’s access to top-notch AI technology amidst the intricacies in sealing every avenue in export controls.

In the initial phase of restrictions, the loophole left open permitted overseas subsidiaries of Chinese companies to have unrestricted access to these semiconductors, thereby, potentially enabling their smuggling into China or remote access by China-based individuals. Notably, chips forbidden by U.S. regulations were reportedly available from vendors in Shenzhen’s Huaqiangbei electronics area as of June.

The loophole’s existence points to the challenge faced by the U.S. in policing transactions involving these chips. While shipping the AI chips to mainland China is against U.S. law, enforcement becomes a hurdle as China-based personnel could lawfully access these chips housed at foreign subsidiaries.

Greg Allen from the Center for Strategic and International Studies highlighted that Chinese firms are procuring chips for overseas data centers, with Singapore emerging as a significant hub for cloud computing.

On the flip side, the Chinese government has previously voiced its discontent over U.S. export controls, accusing Washington of unwarranted suppression of Chinese enterprises.

China’s AI ascendancy is heavily reliant on its access to U.S. chips. A 2022 report by Georgetown University’s Center for Security and Emerging Technology revealed that a substantial portion of AI chips procured through Chinese military tenders were designed by U.S.-based giants like Nvidia, Xilinx, Intel, and Microsemi.

Furthermore, in August, the U.S. urged major chip manufacturers like Nvidia and AMD to limit the shipment of AI chips not only to China but to other regions including certain Middle Eastern countries. The upcoming rules, anticipated to be rolled out this month, are expected to extend these restrictions more broadly across all players in the market.

The Biden administration continues to wrestle with the task of closing loopholes, including the challenge of curtailing Chinese access to U.S. cloud service providers like Amazon Web Services (AWS), which extends similar AI capabilities.

In line with the ongoing U.S. efforts to curb Chinese access to advanced AI chips, as reported by Blockchain.News, senior Republican Representatives Michael McCaul and Mike Gallagher have urged for tighter export control enforcement. On October 6, 2023, they expressed concerns to the National Security Advisor over the Bureau of Industry and Security’s laxity in enforcing existing rules set in 2022 aimed at limiting China’s procurement of advanced semiconductors for military use. This call for stricter enforcement underscores the escalating U.S.-China tech tensions, particularly amidst advancements by China’s Semiconductor Manufacturing International Corporation and Huawei Technologies in semiconductor technology despite current U.S. sanctions.

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