Friday 10 / January / 2025
The US government plans to issue a new rule before the end of this month aimed at curbing Chinese companies’ sourcing of advanced artificial intelligence (AI) chips from unrestricted third-party countries, according to sources.
The new export control measure will focus on controlling the global shipments of powerful graphics processing units (GPUs) that have become instrumental in the training of AI models, closing loopholes in existing rules, according to two people familiar with the matter, who declined to be named because of the sensitivity of the matter. The goal is to regulate the “diffusion” of US products, helping ensure the country maintains global AI leadership.
The date of implementation remains subject to change as the measure has not been finalised. However, if confirmed, it would be a rapid escalation from the last round of chip-related sanctions that came earlier this month.
On December 2, the administration of outgoing US President Joe Biden added 140 Chinese organisations working in semiconductors to a trade blacklist and banned sale of high-bandwidth memory chips to China. In response, China restricted US-bound exports of critical minerals including graphite, launched an antitrust investigation into GPU designer Nvidia over a previously approved merger deal, and saw industry associations urge caution in purchasing US chips, referring to them as “unreliable”.
The rule was drafted with input from US Secretary of Commerce Gina Raimondo and National Security Adviser Jake Sullivan, both considered China hawks, according to one of the sources.
The US Department of Commerce declined to comment on Wednesday.
The new measure is expected to include several provisions to prevent Chinese firms from accessing restricted hardware such as GPUs through intermediary countries, which remains a significant means of circumventing US export controls.
The measures include establishing a so-called country cap that limits GPU shipments to specific locations and implementing a worldwide licensing system with reporting requirements and exceptions. This forms part of broader efforts to monitor and control the global establishment of large-scale GPU and server hubs for AI development, according to one of the sources.
The method of implementing the country-cap provision, described as “complex” by one source, remains unclear.
Under rules issued in 2023, the US sought to prevent countries of concern, including China, from using third-party countries to access restricted items such as advanced chips. Yet Southeast Asian countries such as Singapore and Malaysia have remained key hubs for Chinese GPU smuggling, as they are not covered by US export controls.
China’s smuggling trade has evolved into a large-scale operation with a sophisticated network of companies and individuals moving restricted chips into mainland China, US technology news outlet The Information reported in August.
One of the simplest methods for Chinese firms to access these chips involves hiring smugglers that transport the products piece by piece to mainland China, creating a thriving black market for highly coveted Nvidia GPUs, according to a separate source involved in the trade from Shenzhen.
The price of an Nvidia 4090 – the company’s current top-of-the-line consumer-grade GPU that is banned from export to China – has risen sharply in recent weeks because of supply constraints, this person said. The trader also expressed little concern for the upcoming rules, suggesting smuggling would simply increase from other Asian countries or the US directly.
In the first three financial quarters ended on October 27, Singapore accounted for 15.5 per cent, 18.7 per cent and 22 per cent of Nvidia’s revenue, respectively, according to the Post’s calculations based on data from Visible Alpha, an investment research unit of S&P Global Market Intelligence.
In response to inquiries about the potential new restrictions, Nvidia said it does not comment on unpublished rules. “We are ready to provide the government with any information it requires,” the company said in a statement to the Post on Thursday.
“Accelerated computing plays a pivotal role in a myriad of applications,” the company added, “driving innovation, strengthening economies worldwide, and contributing to the greater good.”
