A Reuters report has brought cloud service providers Amazon’s (AMZN) AWS and Microsoft’s (MSFT) Azure in the spotlight for providing artificial intelligence (AI) services to China. The report cited the review of nearly 50 tender documents from the past year. The tenders show that roughly 11 Chinese entities gained access to U.S. chips and AI software through cloud services.
The U.S. has imposed a strict ban on the export of high-end, advanced chips and AI technology to China, fearing misuse for military advancements. Earlier too, Reuters reported similar skirting of curbs.
The U.S. government restricts only the export of software and technology as a commodity, leaving a loophole for selling them through the cloud. Chinese entities have leveraged this loophole to access advanced technology from the U.S. via Chinese intermediaries rather than buying them directly from AWS or Azure.
Interestingly, at least four of the tenders named AWS as the cloud service provider. In response, an AWS spokesperson said, “AWS complies with all applicable US laws, including trade laws, regarding the provision of AWS services inside and outside of China.”
Chinese Companies Circumvent Curbs
The U.S. has specifically banned the export of Nvidia’s (NVDA) high-end chips that are used to power LLMs (large language models) such as OpenAI’s ChatGPT. A tender from March shows that Shenzhen University paid $27,996 for an AWS account to get access to cloud servers that are supported by Nvidia’s A100 and H100 chips. The service was obtained through an intermediate unit, Yunda Technology Ltd Co. A similar tender revealed the purchase of 40 million Microsoft Azure OpenAI tokens by Sichuan University to build a generative AI platform.
The reports reveal that Chinese companies are relying on American service providers since the computing power of domestic players such as Alibaba’s (BABA) Alicloud is not sufficient to run generative AI models. China undoubtedly remains one of the largest markets for technological products, with companies vying to gain a larger share of this massive demand. According to research firm IDC, AWS is the sixth-largest cloud computing service provider in China.
The U.S. government is well aware of the loophole and is already trying to strengthen regulations to ban access to AI models through the cloud. In April this year, a bill restricting access to chips through cloud services was introduced. However, it remains to be seen if and when it will be passed. A crackdown on this loophole by government officials could have a big impact on AWS and Azure.
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