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With smugglers and front companies, China is skirting US AI bans

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With smugglers and front companies, China is skirting US AI bans

Illustration: Binay Sinha

4 min read Last Updated : Aug 05 2024 | 11:09 PM IST


By Ana Swanson & Claire Fu


In the southern Chinese city of Shenzhen, a mazelike market stretches for a half-mile, packed with stalls selling every type of electronic imaginable.

 


It’s an open secret that vendors here are offering one of the world’s most sought-after technologies: the microchips that create artificial intelligence, which the United States is battling to keep out of Chinese hands.

 


One vendor said he could order the chips for delivery in two weeks. Another said companies came to the market ordering 200 or 300 chips from him at a time. A third business owner said he recently shipped a big batch of servers with more than 2,000 of the most advanced chips made by Nvidia, the US tech company, from Hong Kong to mainland China. As evidence, he showed photos and a message with his supplier arranging the April delivery for $103 million.

 


The US, with some success, has tried to control the export of these chips. Still, The New York Times has found an active trade in restricted AI technology — part of a global effort to help China circumvent US restrictions amid the countries’ growing military rivalry.

 


The chips are an American innovation powering self-driving cars, chatbots and medical research. They have also led to rapid advances in defense technology, spurring US fears that they could help China develop superior weaponry, launch cyberattacks and make faster decisions on the battlefield. Nvidia chips and other US technology have aided Chinese research into nuclear weapons, torpedoes and other military applications, according to a review of previously unreported university studies.

 


Beginning in October 2022, the United States set up one of the most extensive technological blockades ever attempted: Banning the export to China of AI chips and the machinery to make them. The Biden administration also added hundreds of Chinese companies to a list of organizations considered a national security threat, and it could soon expand the rules.

 


These bans have made it harder and more costly for China to develop AI But given the vast profits at stake, businesses around the world have found ways to skirt the restrictions, according to interviews with more than 85 current and former US  officials, executives and industry analysts, as well as reviews of corporate records and visits to compa­nies in Beijing, Kunshan and Shenzhen.

 


In one case, Chinese executives bypassed US restrictions when they created a new company that is now one of China’s largest makers of AI servers and a partner of Nvidia, Intel and Microsoft. American companies have found workarounds to keep selling some products there. And an underground marketplace of smugglers, backroom deals and fraudulent shipping labels is funneling AI chips into China, which does not consider such sales illegal.

 

While the scale of the trade is unclear, the sales described to Times reporters, including the $103 million transaction, would be far larger than any previously reported in China. More than a dozen state-affiliated entities have purchased restricted chips, according to procur­ement documents uncovered by the reporters and the Center for Advanced Defense Studies, a Washington-based nonprofit. The United States has flagged some of those organisations as helping the Chinese military.

Nvidia and other US companies say they are abiding by the restrictions but cannot control everything in their distribution chain. There was no evidence that any of Nvidia’s banned chips in the markets came directly from the company. “We comply with all U.S. export controls and expect our customers to do the same,” said John Rizzo, a spokesman for Nvidia. “Although we cannot track products after they are sold, if we determine that any customer is violating U.S. export controls, we will take appropriate action,” he added.

 

The AI bans have cost American companies billions of dollars in sales, and some executives argue that the restrictions will backfire by giving Chinese competitors an edge. American officials defend the bans as necessary but also say they are testing the limits of their enforcement powers.


Growing Concerns

 


– US trying to stop China from getting Nvidia microchips to advance its military


– The Times found an active trade in Nvidia chips in China despite US national security restrictions


– Nvidia and other US companies say abiding by the restrictions but cannot control everything in distribution chain


– US AI chip bans hampered China’s AI development increasing costs and difficulties in acquiring technology


– Universities and research institutions in China using Nvidia, Intel chips for studies related to nuclear weapons


2024 The New York Times News Service

First Published: Aug 05 2024 | 11:09 PM IST

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