Chinese AI Companies Are Using an Absurd Loophole to Get Around US Chip Restrictions

In case you haven't heard, the United States is embroiled in a life-and-death arms race. Only it's not conventional weapons or even world-ending ICBMs we're rushing to build, and it's definitely not a matter of life and death.

The purported arms race, of course, is the rush to build artificial intelligence, and the US' adversary — for reasons even the Pentagon's most committed war hawks struggle to articulate — is China. In an effort to delay China's flourishing tech sector, Washington has gone to extreme lengths to keep American semiconductors, often called "chips," out of the People's Republic.

But while US officials on both sides of the aisle wax lyrical about China's nefarious "ambitions," Chinese AI companies are slipping by US chip controls with all the effort of a Laurel and Hardy routine.

As first observed in the Wall Street Journal, Chinese engineers are getting around Washington's chip restrictions by simply flying to other countries where US prohibitions don't apply.

It looks like this: Chinese software companies rent out data centers in countries like Malaysia, which contain troves of US-made chips. (Though the Biden administration put tight controls on chip exports to Malaysia, Trump's tariff extravaganza has largely done away with them.) The Chinese companies then send software engineers to Malaysia, packing suitcases full of hard drives.

Each drive holds terabytes worth of AI training data, according to the WSJ. Once in Malaysia, the Chinese engineers plug that data into the servers, training the AI models. After all is said and done, the engineers store the trained large language model (LLM) on their drives and fly back home.

The ingenious sneakernet workaround is taking place all over Southeast Asia and the Middle East, the WSJ reports. And though it's a rather simple operation on paper, the actual maneuvers take eight weeks or more to set up — everything needs to be in place once the engineers arrive, as major changes are difficult to implement after the drives leave the mainland.

"This was something we were consistently concerned about," said Thea Kendler, a Biden administration export official. Kendler, a noted China hawk, has described Biden's intense restrictions on technological exports as necessary to disrupt China's "military advances" — conveniently overlooking the vast US military blockade encircling mainland China.

If enterprising nations like Malaysia want to play the American game — capitalism, that is — by charging Chinese tech companies to rent out their data centers, then there's no overt reason Washington ought to intervene. Covertly, it's been said, a strong Chinese tech sector represents a major threat to US economic interests, by offering an alternative to the type of financial hegemony the US currently enjoys around the world.

As AI industry reporter Garrison Lovely put it: "Only one superpower has a government commission publicly calling for a militarized race to build superintelligent AI (with no plan for how to control it), and it’s not China."

More on China: Chinese Company Leapfrogs Tesla, Announces Self-Driving Car Rental Service

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