US prepares AI chip restrictions to close China’s backdoor access

The US is preparing rules that would restrict the sale of advanced artificial-intelligence chips in certain parts of the world in an attempt to limit China’s ability to access them, according to people familiar with the matter.

The rules are aimed at China, but they threaten to create conflict between the US and nations that may not want their purchases of chips micromanaged from Washington.

In a series of measures dating to October 2022 and updated this month, the Biden administration has tried to block Chinese access to the most-advanced chips as well as chip-making equipment and other technology. It says the goal is to prevent China from using AIto advance its military and surveillance capabilities.

The latest round of curbs could come this month, weeks before President-elect Donald Trump takes office. Among the restrictions, the administration aims to introduce caps on shipments of AIchips to certain countries for use in large computing facilities, people familiar with the plans said.

One grouping of countries—close US allies—would be unrestricted, the people said, while another tier of countries would face limits on the number of chips that can go into data centers used for AI. Chinese companies are banned from purchasing advanced AIchips without a license from the Commerce Department.

The purchasing caps primarily apply to regions such as Southeast Asia and the Middle East, the people said. The rules cover cutting-edge processors known as GPUs, or graphic processing units, which are used to train and run large-scale AImodels.

The regulations are aimed at halting China’s access to computing power housed in other countries, some of the people said. The rule, titled Export Control Framework for AIDiffusion, was submitted to the Regulatory Information Service Center on Monday, according to the center’s website. The website doesn’t detail the rule.

US officials are also considering other options. The administration is considering placing controls on exports of the so-called weights that underlie advanced AImodels, according to people familiar with the matter, and weighing further China-specific restrictions on chip manufacturing.

The administration recently sent letters to major chip-makers including Taiwan Semiconductor Manufacturing and undefined Samsung Electronics informing them about some of the restrictions, these people said. The letters said the companies needed to apply for a license to transfer chips to China that are manufactured using advanced chip-making technology or meet other criteria.

These criteria include a size and transistor-number limit as well as any indication that the chips are for use in training AImodels, the people said. Previous regulations already limit the shipment of advanced GPUs and memory chips to China, but the new rules spell out more clearly to manufacturers what is banned.

The Commerce Department often sends companies such letters in advance of new rule-making, but the restrictions could be altered or may not go forward at all.

TSMCdeclined to comment on specifics and said it complies with rules and regulations. Samsung declined to comment.

Nvidia has developed AIchips for the Chinese market that comply with earlier US restrictions, and China still accounts for about one-eighth of its revenue.

Any cap on shipments to projects in countries outside of China could have an impact on Nvidia, depending on how the final rule is worded.

“While we do not comment on unpublished rules, we are ready to provide the government with any information it requires,” Nvidia said. Advanced computing drives innovation and strengthens economies worldwide, it said.

Some companies have raised concern about the potential new rules rolling out hastily as the current administration draws to a close.

The South China Morning Post previously reported the country caps, and Reuters reported the restrictions on advanced chips from TSMC.

China has denounced the US curbs and retaliated by limiting the export of some minerals used in chip production. This month, the country said it was opening an antitrust investigation into Nvidia.

Washington first imposed widespread curbs on the sale of high-end processors and chip equipment to China in October 2022, seeking to prevent China from using AIto advance its military and surveillance capabilities.

AIis increasingly seen through a national security lens by policymakers, partly because it can augment weapons capabilities.

Despite the export limits, China has managed to make strides with advanced technologies, frustrating Congress. The recent discovery of core circuitry produced by TSMCin Huawei’s AIchips also underscored the difficulty of trying to isolate China from commercial technologies.

Southeast Asian nations are often viewed by industry officials as a backdoor for China to purchase advanced AIchips that it can’t obtain directly from the US An informal market for these chips has popped up in countries such as Singapore, with smugglers sneaking Nvidia’s top-of-the-line AIchips into China through channels such as ordinary freight or individuals carrying them through customs.

In addition, Chinese entities have set up subsidiaries in Southeast Asia to sidestep US curbs and purchase the processors.

The Middle East has come up on Washington’s radar over the past year, with states such as the United Arab Emirates and Saudi Arabia investing billions of dollars to develop their own AIecosystems.

In January, the House Select Committee on the Chinese Communist Party sent a letter to Commerce Secretary Gina Raimondo raising concerns about G42, an Emirati company backed by that country’s national security adviser. Citing relationships with blacklisted Chinese entities, the committee said G42 might divert technology to China.

G42 said at the time that it categorically denied the allegations regarding connections to the Chinese government and their military industrial complex. The company said it was an international enterprise with worldwide partnerships, including with Chinese companies.

In July, US lawmakers called for an investigation into Microsoft ’s $1.5 billion investment in G42, citing similar concerns.

The new chip regulations will test relations between the US, the Middle East and Southeast Asia, regions with Muslim-majority nations already unhappy with American support for Israel’s war in Gaza.

Setting a purchasing cap and establishing new US government oversight could hamper the ambition of countries such as Malaysia, which enjoys friendly ties with both the US and China, to develop into hubs for AIand other computing. Wall Street Journal