Biden hopes to squeeze loopholes to slow China's devouring of US AI chips

The Biden administration's next round of sanctions could close a loophole that has enabled Chinese companies to buy export-controlled technologies, including AI processors, through outside suppliers and subsidiaries.

As reported by Reuters, which cited four unnamed people familiar with the matter, the White House is preparing new plans to possibly extend trade bans to overseas subsidiaries of Chinese organizations to prevent the indirect import of US-developed chips into mainland China.

Export restrictions implemented by Uncle Sam in late 2022 already put limits on the kinds of American-developed semiconductors that could be sold to the Middle Kingdom. Most notably, the restrictions effectively barred the sale of Nvidia, AMD, and Intel's most powerful AI accelerators in the region.

However, there has been a glaring hole in these restrictions. While they prevent Chinese companies from purchasing controlled components directly, there's nothing stopping them from smuggling the chips into the country using overseas subsidiaries.

Earlier this year, we learned that the Chinese agency responsible for developing and maintaining the nation's nuclear arsenal had been using back-channels and shell companies to obtain US chips to power its nuclear weapons simulations, despite a decades-old trade ban that was supposed to prevent America's top tech being used by other foreign armed forces.

The US Commerce Department routinely blacklists companies found to be flouting US export restrictions. It's important to remember that while we often think of these export controls as country specific, they're often targeted at companies and institutions of concern.

Chinese original design manufacturer Inspur found itself on the US Entity List earlier this year after the company was accused of attempting "to acquire US-origin items in support of China's military modernization efforts." Being on that list means American organizations need special permission to do business with you.

Non-American corporations within reach of Uncle Sam ignoring that list may find themselves sanctioned, pressured, or punished.

• Chinese citizens feel their government is doing such a fine job with surveillance
• Beijing-backed server chip startup formed by ex-Arm China execs
• RISC-V org claims export restrictions would stifle innovation
• Taiwan looks into claims local companies helped Huawei advance China chipmaking

As we've discussed previously, there are other means of getting around US export controls. Closing loopholes that allow for the indirect import of AI accelerators won't do anything to stop the flow of AI chips that fly under the performance limits implemented by the Biden administration last year.

Nvidia was actually among the first to design a chip suitable for Chinese export, announcing the availability of the A800 shortly after the export controls went into effect last fall. The chip is essentially a knocked-back version of its A100 accelerator, with its interconnect bandwidth reduced to 400GB/s to be within the rules. Intel followed suit earlier this year with a new Habana Gaudi2 variant designed to comply with US restrictions.

Despite their nerfed performance, these GPUs have remained immensely popular among Chinese companies. According to a Financial Times report from this summer, Chinese web and cloud providers Alibaba, Baidu, ByteDance, and Tencent have collectively ordered 100,000 Nvidia A800 GPUs worth roughly $1 billion and placed orders for another $4 billion of GPUs for delivery in 2024.

Closing the loophole also wouldn't do much to stop Chinese firms from renting time on AI accelerators deployed in the cloud. The Biden administration has reportedly been mulling ways to address this particular challenge since this summer.

Sources tell Reuters new export restrictions on the sale of AI accelerators to China are expected later this month. Whether they will actually close import loopholes, include stricter performance limits on AI hardware sold in the Middle Kingdom, or attempt to prevent Chinese companies from running their AI workloads in the cloud remains to be seen. ®