China's AI industry barely slowed by US chip export rules

BEIJING, May 03 (Reuters): US microchip export controls imposed last year to freeze China's development of supercomputers used to develop nuclear weapons and artificial-intelligence systems like ChatGPT are having only minimal effects on China's tech sector.
The rules restricted shipments of Nvidia Corp and Advanced Micro Devices Inc chips that have become the global technology industry's standard for developing chatbots and other AI systems.
But Nvidia has created variants of its chips for the Chinese market that are slowed down to meet US rules. Industry experts told Reuters the newest one - the Nvidia H800, announced in March - will likely take 10 per cent to 30 per cent longer to carry out some AI tasks and could double some costs compared with Nvidia's fastest US chips.
Even the slowed Nvidia chips represent an improvement for Chinese firms. Tencent Holdings, one of China's largest tech companies, in April estimated that systems using Nvidia's H800 will cut the time it takes to train its largest AI system by more than half, from 11 days to four days.
"The AI companies that we talk to seem to see the handicap as relatively small and manageable," said Charlie Chai, a Shanghai-based analyst with 86Research.
The back-and-forth between government and industry exposes the US challenge of slowing China's progress in high tech without hurting US companies.
Part of the US strategy in setting the rules was to avoid such a shock that the Chinese would ditch US chips altogether and redouble their own chip-development efforts.
"They had to draw the line somewhere, and wherever they drew it, they were going to run into the challenge of how to not be immediately disruptive, but how to also over time degrade China's capability," said one chip industry executive who requested anonymity to talk about private discussions with regulators.
The export restrictions have two parts. The first puts a ceiling on a chip's ability to calculate extremely precise numbers, a measure designed to limit supercomputers that can be used in military research. Chip industry sources said that was an effective action.
But calculating extremely precise numbers is less relevant in AI work like large language models where the amount of data the chip can chew through is more important.
Nvidia is selling the H800 to China's largest technology firms, including Tencent, Alibaba Group Holding Ltd and Baidu Inc for use in such work, though it has not yet started shipping the chips in high volumes.
"The government isn't seeking to harm competition or US industry, and allows US firms to supply products for commercial activities, such as providing cloud services for consumers," Nvidia said in a statement last week.
China is an important customer for US technology, it added.
"The October export controls require that we create products with an expanding gap between the two markets," Nvidia said last week. We comply with the regulation while offering as-competitive-as-possible products in each market."