China's new sanctions loophole: Use export-controlled chips inside the US

Oracle, Nvidia accused of working with ByteDance, others to provide access to advanced parts within America

Chinese companies blocked from getting their hands on cutting-edge AI chips have reportedly been buying access to sanctioned hardware on US soil to avoid raising alarms.

Alibaba and Tencent have reportedly chatted with Nvidia about obtaining in some way or another export-controlled chips for use at datacenters the pair would operate in the US, and China Telecom has reportedly been in talks with cloud providers to access high-performance AI hardware.

Basically, it sounds as though Alibaba, Tencent, and China Telecom want to rent or purchase American hardware to use within the US in a way that won't blatantly bust Uncle Sam's sanctions.

TikTok parent company ByteDance has been caught up in this caper, too, and it's brought its US infrastructure partner Oracle into the mix with it - ByteDance has reportedly been renting access to some of Nvidia's best chips from Oracle.

All of these claims, we note, come from people familiar with matters who spoke to The Information, which broke the story earlier today. The Register has reached out to companies named in the report for more information, but only Nvidia - the company whose chips are the focus of the original story - responded. 

"We support new AI datacenters in the US, enhancing the computing ecosystem and creating jobs," an Nvidia spokesperson told us, answering nothing we asked. "All customers of US datacenters must comply with applicable laws, including export controls and restrictions on misuse."

Sanctions, schmanctions

The US has been involved in what could be described as a chip war for several years now that's largely involved multiple rounds of US sanctions aimed at preventing chip designs and manufacturing hardware from making its way to the China. 

Of course, just because you sanction someone doesn't mean they comply. Companies like Huawei been caught exploiting export sanction loopholes to gain access to advanced chip designs, but advanced chip-making equipment has been making it past sanctions as well. 

On the other hand, the Biden administration has been trying to build a US chip industry that can keep it ahead of China on advanced chipmaking, and combined with sanctions the scales could definitely tip considerably. It's predicted that the US will reach a 28 percent share of the world's top semiconductors by 2032 to China's 2 percent, so even if they aren't air tight those sanctions will still keep Beijing hobbled. 

Of course, those advanced chips being out of reach only increases China's thirst for the technology, which is where new, more novel measures of subverting sanctions like just moving advanced chip use to the US come in. 

What's less certain in this case is whether the Chinese companies involved in this sanction subversion are actually breaking the law, or whether they've just found another clever loophole. We've reached out to the White House and the US Department of Commerce, which handles trade enforcement matters and manages export sanctions, and will update this story if we hear back. ®

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