Export controls fail to keep cutting-edge artificial intelligence chips from China’s Huawei

TAIPEI, Taiwan — A few weeks ago, analysts at a specialized technology laboratory put a Chinese microchip under a powerful microscope. Something didn’t look right.

Finding out where a tiny electronic chip was made is a bit like trying to authenticate a painting. An experienced art appraiser can determine its origin by brush strokes, signatures, and the chemical composition of pigments. For chips, details such as the microscopic layout and material composition of the transistors are telltale signs of what kind of factory they were made in.

There was microscopic evidence that some of the electronic components of Chinese high-tech leader Huawei Technologies were produced by the world’s most advanced chip maker, Taiwan Semiconductor Manufacturing Company. This was a problem because two US administrations in a row took steps to prevent this from happening.

News of the U.S. export control violation, first reported in October by the technology news site Information, sparked concern in Washington, including the expression of Sen. Mark R. Warner (D-Va.), chairman of the Select Committee on Intelligence, in a letter to President Joe Biden on Wednesday.

Warner criticized the Commerce Department for what he called “management failures” in preventing the technologies underlying next-generation artificial intelligence from entering China. “TSMC’s chip production for Huawei has serious implications for US national security,” he wrote.

The chips were funneled to Huawei through Sophgo Technologies, the Chinese cryptocurrency billionaire’s artificial intelligence venture, according to two people familiar with the matter, who spoke on condition of anonymity to discuss sensitive matters.

The Commerce Department defended itself in a statement, saying that more than 400 Chinese companies have been added to its watch list under the Biden administration and that it is continually updating controls to address subversion tactics. The department said it could not confirm whether any investigation was underway.

“No Commerce Department in history has been tougher on China,” the agency said.

The technology’s presence in the Chinese leader’s products underscores the challenges the U.S. government faces as it tries to slow China’s artificial intelligence development by reaching beyond U.S. borders and policing companies that use U.S. technology, such as TSMC.

“This raises some fundamental questions about how well we can enforce these rules,” said Emily Kilcrease, a senior fellow at the Center for a New American Security in Washington.

Huawei’s semiconductor business has been under the US government’s radar since 2020, when the Trump administration imposed the first round of export controls on its chip manufacturing unit. These controls blocked foundries such as TSMC from doing business with Huawei if they wanted continued access to critical US technology.

In a rare area of ​​bipartisan agreement, the Biden administration has doubled down on this approach. He blocked Huawei’s sales to suppliers of tools used to make chips and warned that China’s achievement of advanced artificial intelligence capabilities would pose a military threat to the United States and its allies.

After TSMC was alerted to the presence of its chips in Huawei technology by TechInsights, a Canadian semiconductor research firm that runs the specialized laboratory that identified them, the Taiwanese company voluntarily disclosed the discovery to the US Commerce Department, which is now investigating it. This was reported by one of the sources familiar with the situation.

According to another person, TSMC was able to trace that the chips in question were originally ordered by Sophgo based on the serial number on one of them. Taiwan’s Ministry of Economic Affairs confirmed that TSMC recently stopped supplying a “certain customer” and notified the United States, suspecting that the customer may have directed its products to Huawei.

TSMC said in a statement that it has not supplied products to Huawei since 2020, adding that it conducts thorough due diligence and is “committed to complying with all applicable rules and regulations, including applicable export controls.” Under US export controls, TSMC is allowed to sell less advanced chips to some Chinese companies not included in the sanctions lists.

Sophgo denies it is under investigation and said in a statement on its website that it has “never had any direct or indirect business relationship with Huawei.” The company also said it provided TSMC with a detailed investigation report to prove that the firm had nothing to do with the Huawei investigation.

TechInsights declined to comment this week. The details in this article about how TechInsights conducts forensic analysis of the chips come from an earlier interview with one of the company’s executives, as well as an interview this week with one of the people familiar with the alleged Sophgo sabotage.

Huawei told The Washington Post in a statement that it “has not produced any chips through TSMC” since 2020 and “does not have any business dealings with Sophgo.” The company added that neither the US government nor TSMC has contacted it about this matter.

Crypto tycoon

Mikri Zhan was China’s richest cryptocurrency billionaire in 2018, according to the Hurun China Rich List, with a personal wealth of $4 billion. An engineer by training, he burst onto the Chinese business scene in 2013 when he co-founded Bitmain, a firm that develops chips for cryptocurrency mining. Zhang was named chairman of Sophgo in 2021 by his alma mater, Shandong University.

Starting around 2017, the Chinese government cracked down on the crypto industry, eventually banning trading and mining of digital currencies. The crackdown coincided with Jean turning his attention to chips for artificial intelligence applications.

According to the site, Sophgo went into service in 2020. It designs chips and operates research centers in 10 cities in China, and also has a presence in the United States and Singapore. Zhang named one of his artificial intelligence chips after the supercomputer in “The Three-Body Problem,” a Chinese sci-fi hit.

There has been a lot of industry intrigue in recent days over how chips produced by the crypto billionaire’s TSMC reportedly ended up at Huawei. Critics accuse Sophgo of helping Huawei circumvent export controls, but it is also possible they were sold through an intermediary, consistent with Sophgo’s denial of any business relationship with Huawei.

Zhang’s and Huawei’s companies overlapped in China’s chip manufacturing sector, which has received tens of billions of dollars in government funding and has become a national priority in recent years.

Huawei, one of China’s largest technology employers, announced in 2018 that Bitmain’s Bitcoin wallet BTC.com was available on its phones. The app was removed from the Huawei App Store in 2021, Huawei said. According to Chinese state media, the two companies were working together on an urban computing project organized by the Fuzhou municipal government.

Bitmain released a statement this week saying it was “not involved” in the supply chain investigation.

This is not the first time companies linked to Zhang have found themselves in hot water for circumventing rules to access Taiwanese chip technology. In 2021, Taiwanese prosecutors charged two Bitmain affiliates with illegally hiring Taiwanese semiconductor engineers, according to the New Taipei City Prosecutor’s Office. Four Taiwanese pleaded guilty.

Arms race

Semiconductors are at the center of the US-China technology race. The tiny components are needed for everything from rockets to electric cars to toasters, and the chip supply chain is a network of international companies in places such as the Netherlands, South Korea and Taiwan.

TSMC’s chips ended up in Huawei’s latest advanced artificial intelligence processor, the Ascend 910B chipset, according to one person familiar with the matter, a product the company is developing despite efforts by the U.S. government to block its innovation in the field. The rise of artificial intelligence has sparked a global chip arms race, with hundreds of thousands of chips being used simultaneously by companies like OpenAI to train large language models at a cost of millions of dollars.

TSMC’s involvement in the matter poses problems for Washington, in part because the United States is so dependent on the semiconductor giant, which produces a huge share of the world’s advanced chips.

“We need TSMC to be a trusted partner that fully complies with our export control laws because we’re putting a lot of our economic security eggs in that basket right now,” Kilcrease said. The Commerce Department’s role is further complicated by the fact that it is providing grants to TSMC to build the Arizona plant under the CHIPS Act, a law passed in 2022 aimed at supporting the U.S. semiconductor supply chain, she said.

“There is a big tangled web of relationships here that needs to be sorted out and managed very carefully at this stage,” she added. “I don’t think the US government has any interest, either from a security or an economic perspective, in targeting TSMC.”

While export controls are often difficult to enforce, semiconductors are especially challenging to manage due to the large and open nature of the global chip trade.

Since the Biden administration introduced sweeping controls in 2022, there have been reports of widespread chip smuggling and semiconductor black markets allowing Chinese companies to gain access to needed chips.

“It’s always been very difficult to keep the chips in hand,” said James Lewis, senior vice president at the Center for Strategic and International Studies in Washington. “It’s a very open market. It’s very difficult to get it under control.”

For the new administration, no matter who is elected president next week, questions about the effectiveness of chip export controls will be at the forefront as they assess the future of China’s policies, particularly regarding private sector compliance and public sector enforcement.

Paul Triolo, head of technology policy at Albright Stonebridge Group, said companies are trying to figure out what lengths they will have to go to for due diligence: “The guidelines are unclear.”

Dow reported from Washington. Vic Chan in Taipei, Taiwan, and Ellen Nakashima in Waimea, Hawaii, contributed to this report.