Chinese firms still have access to Nvidia Inc’s high-end artificial intelligence (AI) chips by using cloud servers operated by Google and Microsoft despite the United States’ chip export ban. 

Microsoft permits its customers in China to use Azure cloud servers based outside of mainland China, The Information reported on Wednesday, citing an employee of the US technology giant with knowledge of the services and a person directly involved in the sales. 

The report said Google also lets Chinese customers use its AI cloud services, quoting the company as saying it is confident that the arrangement fulfills the US export rules. 

These cloud servers use Nvidia’s A100 and H100, which have been banned by the US Commerce Department from being shipped to China since October 2022.  

Nvidia, Microsoft and Alphabet have yet to respond to Reuters’s requests for comment. 

The Information’s report came after OpenAI, a Microsoft-backed company that owns ChatGPT, has from July 9 strengthened the screening of its customers’ locations to make sure that those in mainland China, Hong Kong and Macau cannot use its AI chatbot via virtual private network (VPNs).

Since the launch of ChatGPT in November 2022, OpenAI has not offered its services to Russia, China, Iran or North Korea. People in Hong Kong and mainland China had to use ChatGPT via VPNs, but now they can’t connect. 

“The US is worried that its leading generative AI technology will be used to improve industrial production efficiency in China,” a Guangdong-based writer says in an article published on July 2.

“When ChatGPT was available for global users during the past one-and-a-half years, China has already mastered the core AI technology principles and architecture and launched its own chatbots,” he says. 

He says that, as Chinese firms now cannot use ChatGPT, they will turn to using local chatbots. He says such a trend will help China build a local AI ecosystem. 

The Global Times reported on July 13 that Alibaba, Tencent and Baidu have recently unveiled different packages to lure Chinese firms to transfer their AI models from ChatGPT to their platforms.

The Financial Times reported on July 4 that Alibaba, Tencent, Baidu and ByteDAnce have recently bought more of Nvidia’s H20 chips for their chatbots. It said Nvidia’s sales of H20 chips in China may reach one million units, or US$12 billion in value, this year. Tailor-made for the Chinese markets, H20 is a downgraded version of H100.

‘Know your customer’

The Commerce Department was preparing to bar US firms from providing cloud services that use advanced AI chips to Chinese customers, the Wall Street Journal reported in July 2023. It wanted to close a loophole that had allowed Chinese firms to obviate its chip export ban.

Also in July last year, US Congressman Jeff Jackson introduced a bipartisan bill called Closing Loopholes for the Overseas Use and Development of AI (Cloud AI) Act. 

“The Department of Commerce’s export controls were an important step to protecting American AI innovation, but we cannot let China skirt the rules,” he said. “We must ensure American technology cannot be used by the Chinese Communist Party to strengthen its military and develop new technologies to suppress groups like the Uyghurs.”

However, the legislation progress has remained slow as the matter involves third countries. There are no rules that forbid Chinese firms’ overseas units from using the United States’ AI cloud services, nor any rules that forbid US firms from offering AI cloud services to Chinese firms in third countries. 

On January 29 this year, US Commerce Secretary Gina Raimondo proposed a new regulation requiring US Infrastructure-as-a-Service (IaaS) providers to verify the identity of their foreign customers and authorize special measures to deter foreign malicious cyber actors’ use of American IaaS products. IaaS is a type of on-demand cloud computing service, usually offered on a pay-as-you-go basis. 

Raimondo told Reuters in an interview that the proposed “know your customer” regulation is an important measure to prevent China from using US technology to train its own AI models. 

The “know your customer (KYC)” practice has been implemented in the banking sector for decades for government agencies to curb money laundering. Financial institutions, law and accounting firms have the responsibility to ensure that their clients’ transactions are free from financial crimes. 

Last month, The Information reported that two US cloud providers had declined offers to allow ByteDance and China Telecom to use their cloud servers as they knew that these deals went against the spirit of the US chip export ban.

However, the report said ByteDance was still training its AI model by using Oracle’s cloud service powered by H100 chips. A former Nvidia employee said it would be difficult for the US government to block the export of the AI models to China once they were developed. 

Read: China’s legacy chips in EU’s crosshairs

Follow Jeff Pao on X at @jeffpao3