TikTok is renting NVIDIA GPUs in the cloud to circumvent sanctions, a common tactic used by Chinese companies

The United States has imposed export restrictions on semiconductors to China, making it difficult for Chinese companies to directly obtain high-performance GPUs, which are essential for the development of AI. TikTok's Chinese parent company, ByteDance, is accessing NVIDIA's AI chips through the cloud to circumvent the sanctions, according to a report by foreign media outlet 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 the main Chinese companies that are renting or buying AI chips without the US government's knowledge. TikTok operator ByteDance also rents servers equipped with NVIDIA's popular AI chip 'H100' through Oracle Cloud Computing.

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

A source who spoke to The Information said, 'TikTok trains its AI models in the United States, and it would be difficult to stop the models they create from being sent back to their headquarters in China.'

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

However, progress on the proposed rules has 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 either sell TikTok or withdraw from the market, raising concerns that efforts by Chinese authorities to prevent American data from being passed on to the Chinese government may be in vain. The reports of this loophole have once again highlighted the difficulty of such measures.

TikTok sues over US ban - GIGAZINE

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