According to four people with knowledge of the situation, the Biden administration is considering removing a loophole that allows Chinese corporations to acquire American artificial intelligence (AI) chips through overseas divisions.

Last year, in an effort to block China’s military advancements, the United States announced new limitations on shipments of AI chips and chipmaking tools to Beijing. This strained relations between Washington and Beijing. In the upcoming days, those regulations will likely become stricter. According to someone with knowledge of the matter, the measure might be covered by the new limitations.

In the initial wave of prohibitions, the Biden administration gave Chinese companies’ abroad subsidiaries free access to the same chips, making it simple to sneak these products into China or utilise them remotely by Chinese consumers.

According to Reuters, sellers in Shenzhen, a city in southern China,’s renowned Huaqiangbei electronics district, sell the exact chips that are prohibited by American legislation.

According to sources, Washington is currently considering methods to close the loophole, which has not previously been announced.

The actions taken to overcome the loophole demonstrate how difficult it is to close all export control gaps and how the Biden administration struggles to deny China access to cutting-edge AI technology.

Greg Allen, a director at the Center for Strategic and International Studies, noted that Singapore is a major hub for cloud computing and asserted that Chinese companies are undoubtedly buying chips for use in data centres abroad.

The Department of Commerce declined to comment. Requests for reaction from the Chinese Embassy in Washington were not immediately answered. The U.S. has been accused of misusing export restrictions in the past, and China’s Ministry of Commerce has urged Washington to “stop its unreasonable suppression of Chinese companies.”

Although it would be against the law in the United States to transport those AI chips to mainland China, analysts said it would be very challenging to monitor such transactions given that staff members in mainland China may legitimately access chips situated at overseas companies remotely.

Hanna Dohmen, a Research Analyst at Georgetown University’s Center for Security and Emerging Technology (CSET), stated, “We don’t exactly know how large of a concern this is.

An article in The International Affairs Review, a publication associated with the School of International Affairs at George Washington University, claims that the United States has been attempting to stop China’s development of artificial intelligence technology, which aids its military in creating unmanned combat systems.

Access to American chips is necessary for China to have a functional AI. Nearly all of the 97 unique AI chips purchased through Chinese military bids during an 8-month period in 2020, according to CSET’s June 2022 report, were created by American firms Nvidia, Xilinx, Intel, and Microsemi.

Washington has been attempting to plug further gaps that let the AI chips into China. It instructed Nvidia and AMD to limit shipments of the AI processors outside of China, including to some Middle Eastern nations, in August.

According to sources, all market participants will likely be subject to the same limitations under the new regulations on AI chips that are anticipated this month.

The U.S. government’s ability to bridge the gap that allows Chinese parties to use American cloud services like Amazon Web Services, which provide their clients access to the same AI capabilities, is less obvious. However, sources claim that problem is also being addressed by the Biden administration.

“Chinese people can access the identical chips entirely legally from anywhere in the world. There are no restrictions on how they can be accessed, according to Timothy Fist, a fellow at the Center for a New American Security in Washington, D.C.