US Moves to Close Loopholes China Is Exploiting to Secure AI Chips

17.10.2023 - 16:23 / pcmag.com / Gina Raimondo / Ai

The White House is tightening US rules that block AI chip sales to China in an attempt to close loopholes the country has been using to secure the technology.

"Today’s updated rules will increase effectiveness of our controls and further shut off pathways to evade our restrictions,” says US Commerce Secretary Gina Raimondo.

A year ago, the Biden administration announced the original restrictions, which were designed to prevent the Chinese government and the country’s companies from obtaining the most advanced computer chips. The White House fears China will use the processors to power military supercomputers and other technologies, including surveillance, that could pose a threat to US national security and human rights. 

The rise of generative AI, such as OpenAI’s ChatGPT, has only heightened the Biden administration’s concerns. But despite the original restrictions, Chinese companies have still been spotted spending billions on AI chips, particularly those from Nvidia. 

In response, the Commerce Department has expanded the original restrictions. One of the new rules calls for a new “performance density threshold,” which is specifically designed to stymie China from working around US restrictions. 

“A performance density parameter prevents the workaround of simply purchasing a larger number of smaller datacenter AI chips which, if combined, would be equally powerful as restricted chips,” says the Commerce Department’s Bureau of Industry and Security.

This means US companies will need to first notify the federal government when selling a large number of less powerful AI chips to a Chinese company. The US government will then determine within 25 days if the transaction can proceed or if it instead requires a license. 

The new restrictions also close a loophole involving a Chinese company securing chip supplies through a subsidiary based in another country. Soon companies will need to secure a license from the Commerce Department to conduct sales when the “ultimate parent company is headquartered” in China. In addition, chip makers will need to obtain a license to ship their AI processors to 22 countries subject to US arms embargos over concerns the same countries could funnel the chip supplies to China. 

Another change involves chip foundries that manufacture the silicon. If a Chinese company hires a foundry to build a processor, including chiplet designs, with over 50 billion transistors and high-bandwidth memory, then they’ll need to secure a license from the US government to proceed with the chip order. 

The new rules are set to go into effect on Nov. 16, although they could face complaints from US tech companies such as Nvidia, which has become the major supplier of AI chips. However, the Commerce