TikTok is evading sanctions by renting NVIDIA GPUs from the cloud, a common tactic used by Chinese companies

The US has imposed export restrictions on semiconductors to China, making it difficult for Chinese companies to directly obtain high-performance GPUs, which are essential for AI development. TikTok's Chinese parent company, ByteDance, is accessing NVIDIA's AI chips through the cloud to circumvent the restrictions, according to a report by The Information.

China's Nvidia Loophole: How ByteDance Got the Best AI Chips Despite US Restrictions — The Information

Chinese companies are reportedly using Nvidia's AI chips through cloud providers as a new loophole.

Alibaba, Tencent, and China Telecom are among the Chinese companies that have been identified as renting or purchasing AI chips without the knowledge of the US government. TikTok operator ByteDance also rents servers equipped with NVIDIA's popular H100 AI chip through Oracle Cloud Computing.

While these actions violate the spirit of the US government's semiconductor regulations, Oracle is not technically subject to the regulations because it is not selling AI chips to Chinese companies; it is simply leasing them out and keeping them in the US.

A source close to the matter told The Information, 'TikTok trains its AI models in the United States, and it would be difficult to prevent the models they create from being sent back to their headquarters in China.'

Meanwhile, US authorities are not standing idly by while Chinese companies violate sanctions. In early 2024, the US Department of Commerce proposed a rule requiring domestic cloud providers to verify the identities of their foreign customers and notify authorities if they train AI models that could be used for malicious cyber activities.

However, the proposed rules have stalled due to opposition from many cloud providers, leaving measures to close the loophole in limbo.

Coincidentally, TikTok has filed a constitutional lawsuit against the 'TikTok Ban Act,' which would force ByteDance to sell TikTok or withdraw from the market. It has been pointed out that efforts by Chinese authorities to prevent American data from being passed on to the Chinese government may be incomplete, and the reports of this loophole have once again highlighted the difficulty of such measures.

TikTok sues over US ban - GIGAZINE

The Information said, 'Even if the United States succeeds in closing the cloud loophole, it will not prevent Chinese companies from incorporating NVIDIA chips into their own data centers in the United States to train AI models.'