WASHINGTON: According to four sources familiar with the topic, the Biden administration is considering removing a loophole that allows Chinese corporations to obtain American artificial intelligence (AI) chips through overseas divisions.
In an effort to thwart China's military advancements, the United States strained relations with Beijing last year when it announced new limitations on shipping of artificial intelligence chips and chipmaking tools to China. In the next few days, such regulations will be tightened. The measure may be subject to the new regulations, according to an insider.
The first series of restrictions put in place by the Biden administration allowed Chinese firms with abroad subsidiaries unrestricted access to the same chips, making them easy to smuggle into China or use remotely by users in the country.
In June, Reuters reported that sellers in the renowned Huaqiangbei electronics sector in the southern Chinese city of Shenzhen sold the identical chips prohibited by US rules.
Sources say that Washington is considering closing the loophole, which is new information.
The Biden administration's efforts to seal the loophole demonstrate how challenging it is to plug every opening in export controls and so deny China access to cutting-edge AI technology.
While Singapore is a major hub for cloud computing, "absolutely, Chinese firms are purchasing chips for use in data centres abroad," said Greg Allen, director at the Centre for Strategic and International Studies.
The Department of Commerce said they had no comment. There was no immediate response to a request for comment from the Chinese Embassy in Washington. The Chinese Ministry of Commerce has already demanded the US "stop its unreasonable suppression of Chinese companies" for allegedly violating export rules.
Shipping AI chips to mainland China would be against US law, but experts say it would be nearly impossible for the US to regulate such transactions, especially since personnel in China may legally access chips stored at international companies through remote access.
"We don't actually know how big of a problem this is," said Hanna Dohmen, a Research Analyst at Georgetown University's Centre for Security and Emerging Technology (CSET).
According to an article in The International Affairs Review, published by the George Washington University School of International Affairs, the United States has been trying to prevent the growth of China's artificial intelligence capabilities, which aids the country's military in developing unmanned combat systems.
China's ability to develop AI is contingent on its ability to import US chips. According to a report published by CSET in June 2022, nearly all of the 97 separate AI chips purchased by the Chinese military through tenders over an 8-month period in 2020 were created by businesses based in the United States, including Nvidia, Xilinx, Intel, and Microsemi.
Washington has been trying to find new entry points for the AI chips into China and shut them down. In August, it instructed Nvidia and AMD to limit exports of its AI chips to nations outside of China, including several in the Middle East.
According to sources, these restrictions will most likely be extended to all companies in the market under the new guidelines on AI chips that are anticipated this month.
How the United States government might prevent Chinese entities from using American cloud providers like Amazon Web Services, which supply their customers with the same AI capabilities, remains unclear. It has been reported, however, that the Biden administration is also struggling with this problem.
Anywhere in the world, Chinese citizens have full legal access to the same chips. "There are no rules about how they can be accessed," said Timothy Fist, a fellow at the Centre for a New American Security in Washington, D.C.
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