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How Biden Intends to Prevent China from Obtaining Banned Chips?

In a June report by Reuters, it was highlighted that the AI chips prohibited by U.S. regulations could still be procured from vendors in the well-known Huaqiangbei electronics area in Shenzhen, a city in southern China.
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In a bid to safeguard national security and curb technological advancements that could bolster China military capabilities, the Biden administration is contemplating closing a significant loophole in existing regulations concerning the export of artificial intelligence (AI) chips.

This loophole enables Chinese companies to access American AI chips through overseas units, potentially using them for military purposes. The United States had previously imposed restrictions on the export of AI chips to China; however, this measure inadvertently left overseas subsidiaries of Chinese companies with unimpeded access to these crucial components.

This article delves into the intricacies of this issue, highlighting the challenges the administration faces and the potential implications for national security.

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Understanding the Loophole:


The loophole in the export control regulations became evident when the United States tightened restrictions on the shipment of AI chips and chipmaking tools to China last year. While aiming to impede China’s military advancements, this move inadvertently granted Chinese companies access to AI chips through their overseas subsidiaries. These chips could potentially find a path into China or be accessed remotely by users based there. This unintended consequence raised concerns about national security and prompted the need for rectification.

In the initial set of restrictions, the Biden administration allowed overseas subsidiaries of Chinese companies unrestricted access to the same semiconductors. This oversight implies that these chips could potentially be directed into China or accessed remotely by users based there.

In a June report by Reuters, it was highlighted that the AI chips prohibited by U.S. regulations could still be procured from vendors in the well-known Huaqiangbei electronics area in Shenzhen, a city in southern China.

Now, Washington is actively exploring strategies to close this regulatory gap, a development not previously disclosed. These efforts underscore the challenges the Biden administration faces in severing China’s access to advanced AI technology and the inherent difficulties in plugging every loophole in export controls.

Greg Allen, a director at the Center for Strategic and International Studies, emphasized that Chinese companies are indeed acquiring chips for utilization in data centers abroad. He highlighted Singapore’s significance as a hub for cloud computing, emphasizing how Chinese entities might indirectly access AI chips.

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China’s Dependency on U.S. AI Chips:


The Ministry of Commerce in China has previously alleged that the U.S. is misusing export controls and has urged the U.S. to cease what they deem as unjustifiable suppression of Chinese businesses.

While U.S. law prohibits sending AI chips to mainland China, experts emphasized the formidable challenge the U.S. faces in effectively monitoring and regulating these transactions. They emphasized that even China-based employees could lawfully access the chips situated in foreign subsidiaries.

China’s growing artificial intelligence capabilities rely significantly on chips manufactured in the U.S. These chips play a fundamental role in empowering various sectors, including the military, by aiding the development of AI technologies. An analysis by the Center for Security and Emerging Technology (CSET) showed that a considerable share of AI chips utilized by the Chinese military originated from major U.S.-based companies such as Nvidia, Xilinx, Intel, and Microsemi. This highlights the necessity of controlling the export of AI chips to China in order to safeguard national security.

Read more: How China is Penetrating US Sanctions to Achieve Chip Self-Reliance

Implications and National Security Concerns:


“We currently lack precise knowledge of the extent of this issue,” stated Hanna Dohmen, a Research Analyst affiliated with Georgetown University’s Center for Security and Emerging Technology (CSET).

The United States has been actively striving to impede the advancement of China’s artificial intelligence capabilities, which play a pivotal role in the development of unmanned combat systems for its military, as outlined in a report from The International Affairs Review associated with George Washington University’s School of International Affairs.

China heavily relies on U.S. chips to bolster its AI capabilities. A report by CSET in June 2022 uncovered that out of 97 AI chips procured via Chinese military tenders between 2020, major U.S.-based companies like Nvidia, Xilinx, Intel, and Microsemi had designed nearly all of them.

Efforts have been underway in Washington to close other loopholes facilitating the export of AI chips to China. In August, both Nvidia and AMD received instructions to restrict the shipment of AI chips beyond China, extending these limitations to various regions, including specific countries in the Middle East.

Sources indicate that the forthcoming AI chip regulations, expected to be introduced this month, will probably expand these restrictions to cover all companies in the market.

The approach to closing the loophole that allows Chinese entities to access U.S. cloud providers like Amazon Web Services, providing them with equivalent AI capabilities, remains less clear. However, sources indicate that the Biden administration is actively addressing this challenge.

“Chinese individuals can legally access the same chips from any location worldwide. There are no established rules regarding how they can be accessed,” noted Timothy Fist, a fellow at the Center for a New American Security, a think tank based in Washington.

Challenges in Closing the Loophole:


Closing the AI chip loophole presents a considerable challenge for the Biden administration. Despite efforts to restrict the export of these chips to China, monitoring and enforcing such regulations can prove exceedingly difficult. The global nature of modern business and the interconnectedness of technology make it challenging to prevent the indirect access to these chips by China-based entities.

Conclusion:


The Biden administration’s endeavors to close the loophole that grants Chinese companies access to American AI chips through overseas units signify a critical step toward securing national interests and maintaining technological superiority. As the administration grapples with the complexities of enforcing export controls effectively, finding robust solutions is imperative to safeguarding national security in an increasingly technologically interconnected world. Balancing technological advancements with security imperatives remains a delicate task for policymakers as they strive to stay ahead in the AI race while mitigating potential risks.

Reference:

[1] Reuters

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