Today, the Department of Commerce announced that it is expanding export controls to hinder China’s progress in advanced AI technology for military use. The move will further limit Chinese companies’ access to U.S.-derived semiconductor manufacturing equipment and chips.

The updated controls revise the October 7th, 2022, chip export regulations targeting China which were first introduced by the Biden administration 1 year ago. The restrictions target chips made by Nvidia Corp. but could also affect chips sold by Intel and AMD, among other companies. The restrictions also place limits on exports to Chinese artificial intelligence chip companies, Shanghai Biren Intelligent Technology Co. and Moore Threads Intelligent Technology Beijing Co., which are seen as competitors to Nvidia.

The new regulations:

• Include a new performance density threshold (there are now 2 benchmarks—performance density and the preexisting performance threshold) above which companies must get a license to export the product;
• Include a notification requirement for companies that sell chips below these performance thresholds—called the “gray zone.” These chips may still have national security uses and the U.S. government is looking to collect additional information on flows of these products. The government hopes to review notifications within a 25-day period.
• Prevent circumvention by requiring a license for exports to companies domiciled in over 40 additional at-risk countries;
  • Also expands restrictions to companies domiciled in areas covered by U.S. arms embargo, including Hong Kong and Macau;

• Expands the list of controlled semiconductor manufacturing equipment; and
• Adds 13 new companies to the Entity List.

After receiving public input on the initial regulations, the revised restrictions generally permit the sale of advanced chips for use in commercial applications, such as in smartphones, computers, and electric vehicles. However, the Biden Administration will impose limitations on the most advanced consumer chips, such as those used in AI data centers. While high-end chips are the preferred choice for powering AI models, less advanced chips could be repurposed for AI and supercomputing with some investment.

ACG Analytics will be hosting a call on these rules within the coming week for clients with Greg Allen, the Director of the Wadhwani Center for AI and Advanced Technologies at the Center for Strategic and International Studies (CSIS).

The U.S. semiconductor industry criticized the new rules, with leaders cautioning that these stronger restrictions could further incentivize China’s development of alternatives to U.S. technology. Commerce Secretary Gina Raimondo said that the update is aimed at limiting China’s access to advanced chips that “could fuel breakthroughs in artificial intelligence and sophisticated computers” and are needed for the Chinese military. She added that the rules will be updated at least annually, which suggests that the United States will not allow technological developments to outpace its export control regime. During a routine press briefing, Chinese Foreign Ministry spokesperson Mao Ning criticized the restrictions and stated that the U.S. needs to stop “politicizing, instrumentalizing and weaponizing trade and tech issues.”

While these developments will certainly irritate China, the Biden Administration did notify the government of its intention to release the updated restrictions weeks ago. We still expect Presidents Biden and Xi to meet at the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco next month. Chinese officials have previously warned that they will have no choice but to respond if the United States continues to limit trade in these sensitive technology industries. China is more likely to retaliate in a tit-for-tat manner similar to the trade wars under President Trump by making it more difficult for U.S. companies to do business in China.

The new restrictions address Nvidia’s A800 and H800 chips specifically designed for the Chinese market after last year’s restrictions were released. The chips could be utilized by Chinese firms to train AI models, although they operate at slower speeds.

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