Chinese Companies Sanctioned by the U.S. Have a Plan to Keep Buying AI Chips, a Very Creative One

The U.S. government is determined to prevent the most powerful GPUs for AI manufactured by U.S. companies from falling into the hands of China at all costs. The Biden administration uses every opportunity to emphasize at that Xi Jinping’s government can use these chips to develop its potential weapons arsenal, and the U.S. is doing everything in its power to prevent that from happening.

However, keeping track of goods in today’s highly stratified global marketplace isn’t easy. Under Secretary Gina Raimondo, the Department of Commerce has imposed rigorous export controls on Nvidia, Intel, AMD, and others for nearly two years. And yet, innovative GPUs for AI continue to arrive in China—not in enormous quantities, but they’re definitely making an impact.

It’s Not Possible to Completely Control the Distribution Chain

The New York Times has published a report claiming that Chinese companies on the U.S. blacklist are managing to evade sanctions. They use a clever trick, creating new companies that buy and distribute U.S.-controlled hardware until the administration identifies them. During this impasse, the companies identified by the U.S. government close, and their owners set up other similar companies engaged in the same activity.

It’s not easy for the Biden administration to keep track of all the Chinese companies that have sprung up for this purpose. The New York Times claims they’re conducting transactions involving anything from a few hundred GPUs to thousands of these chips. One of them, in particular, inked a deal worth at least $103 million. As you might expect, the buyers of this material are state-owned or state-affiliated Chinese companies or companies that the U.S. has sanctioned for working with the Chinese defense industry.

Nvidia, Intel, AMD, Qualcomm, and other U.S. companies involved in the cutting-edge semiconductor industry cannot comprehensively control the fate of each of their chips. They can track the movements of their direct customers and even their secondary buyers. Still, they can’t track their products much further, let alone to the end user. This is impractical from both an operational and an economic standpoint.

The main problem for the U.S. government is that it’s effortless for China to set up a company and buy innovative chips before the U.S. discovers its purpose and imposes sanctions. The Commerce Department finds it materially impossible to paper over all the cracks, and there’s no indication that this picture will change, at least in the medium term. Under these circumstances, the most effective strategy for the U.S. is to strengthen its semiconductor industry, accelerate its development, and distance itself as much as possible from the booming Chinese chip industry.

This article was written by Juan Carlos López and originally published in Spanish on Xataka.

Image | Intel

More info | The New York Times

Related | Intel Is Already Mass-Producing Chips on the Intel 3 Node. Its Competition With TSMC and Samsung Has Begun