Chinese AI firms ship hard drives abroad to dodge chip curbs

In nearly March, four Chinese engineers flew to Malaysia from Beijing, each carrying a suitcase packed with 15 hard drives.

- Raffaele Huang & Liza Lin

The drives contained 80 terabytes of spreadsheets, images and video clips for training an artificial-intelligence model.

At a Malaysian data center, the engineers' employer had rented about 300 servers containing advanced Nvidia chips.

The engineers fed the data into the servers, planning to build the AI model and bring it back home.

Since 2022, the U.S. has tightened the noose around the sale of high-end AI chips and other technology to China over national-security concerns. Yet Chinese companies have made advances using workarounds.

In some cases, Chinese AI developers have been able to substitute domestic chips for the American ones. Another workaround is to smuggle AI hardware into China through third countries. But people in the industry say that has become more difficult in recent months, in part because of U.S. pressure.

That is pushing Chinese companies to try a further option: bringing their data outside China so they can use American AI chips in places such as Southeast Asia and the Middle East.

The maneuvers are testing the limits of U.S. restrictions.

"This was something we were consistently about," said Thea Kendler, who was in charge of export concerned controls at the Commerce Department in the Biden administration, referring to Chinese companies remotely accessing advanced American AI chips.

Layers of intermediaries typically separate the Chinese users of American AI chips from the U.S. companies-led by Nvidia-that make them.

That leaves it opaque whether anyone is violating U.S. rules or guidance.