Export controls have prevented it from keeping state-of-the-art AI chips from China’s Huawei

TAIPEI, Taiwan – A few weeks ago, analysts at a specialized technology lab put a microchip from China under a powerful microscope. Something didn’t look right.

Figuring out where a small electronic chip was made is a bit like trying to authenticate a painting. A trained art appraiser can determine a work’s provenance based on the brushstrokes, signature and chemical composition of the pigments. In the case of chips, details such as the microscopic arrangement and the material composition of the transistors are telltale signs of which foundry produced them.

Microscopic evidence has been found that some of the electronic components of Chinese high-tech master Huawei Technologies were manufactured by the world’s most advanced chipmaker, Taiwan Semiconductor Manufacturing Company. This was a problem because two U.S. administrations in a row took action to prevent this from happening.

The news of the violation of U.S. export controls, first reported in October by the news website Information, caused a wave of concern in Washington, expressed by, among others, Senator Mark R. Warner (D-Virginia), chairman of the Select Committee on Intelligence on Wednesday’s letter to President Joe Biden.

Warner criticized the Commerce Department for what he called “failures of leadership” in preventing technologies that underpin next-generation artificial intelligence from reaching China. “TSMC’s chip production for Huawei has serious implications for U.S. national security,” he wrote.

The chips were sent to Huawei through Sophgo Technologies, the AI ​​venture of a Chinese cryptocurrency billionaire, according to two people familiar with the matter, speaking on the condition of anonymity to discuss the sensitive topic.

The Commerce Department defended itself in a statement, saying that more than 400 Chinese entities had been added to the inspection list under the Biden administration and that it was constantly updating inspections to eliminate diversionary tactics. She stated that she could not confirm whether there was any ongoing investigation into the matter.

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

The presence of this technology in the Chinese champion’s products highlights the challenges facing the US government, which is trying to slow down the development of artificial intelligence in China by extending beyond US borders and controlling the activities of companies using American technology, such as TSMC.

“This raises some fundamental questions about how well we can actually 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 in the U.S. government’s crosshairs since 2020, when the Trump administration imposed the first round of export controls on its chip division. These controls prevented foundries like TSMC from doing business with Huawei if they wanted continued access to critical American technology.

In a rare area of ​​bipartisan agreement, the Biden administration has doubled down on this approach. She blocked suppliers of tools used to make chips from selling to Huawei 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 company that runs the specialized laboratory that identified them, the Taiwanese company voluntarily disclosed the discovery to the US Department of Commerce, which is currently investigating the matter. – says one of the people familiar with the matter.

According to the second person, TSMC was able to determine that the chips at issue were originally ordered by Sophgo based on the serial number placed on one of them. Taiwan’s Ministry of Economy confirmed that TSMC recently suspended shipments to “a certain customer” and notified the United States when it suspected the customer may have diverted its products to Huawei.

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

Sophgo denied there was an ongoing investigation and said in a statement on its website that it had “never been involved in any direct or indirect business relationship with Huawei.” It also stated that it provided TSMC with a detailed investigation report to prove that the company was not associated with the Huawei investigation.

TechInsights declined to comment this week. The details in this article about TechInsights’ forensic chip analysis 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 diversion.

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 agreement with Sophgo.” The company added that it has not been contacted by the US government or TSMC regarding this matter.

Cryptocurrency tycoon

Micree Zhan was China’s richest cryptocurrency billionaire in 2018, with a personal fortune of $4 billion, according to Hurun China Rich List. An engineer by training, he burst onto the Chinese business scene in 2013 when he co-founded Bitmain, a company that designs cryptocurrency mining chips. Zhan has been identified as Sophgo’s 2021 chairman by his alma mater, Shandong University.

Starting around 2017, the Chinese government turned against the cryptocurrency industry, ultimately banning trading and mining of digital currencies. The crackdown coincided with Zhan’s focus on chips for artificial intelligence applications.

According to Sophgo’s website, it was shipped in 2020. It designs chips and operates research centers in 10 cities across China, and also has a presence in the United States and Singapore. Zhan named one of his AI chips after the supercomputer from the Chinese science fiction hit “The Three-Body Problem.”

There has been a lot of intrigue in the industry in recent days as the crypto billionaire’s chips manufactured at TSMC reportedly found their way to Huawei. Critics accuse Sophgo of working together to help Huawei avoid export controls, but it is also possible they were sold through an intermediary, which would be consistent with Sophgo’s denial of having any business relationship with Huawei.

Zhan’s and Huawei’s companies have crossed paths in China’s chip sector, which has received tens of billions of dollars in government funding and has been elevated to a national priority in recent years.

Huawei, one of China’s largest technology employers, announced in 2018 that Bitmain’s BTC.com bitcoin wallet would be available on its phones. Huawei said the app was removed from the Huawei app store in 2021. According to Chinese state media, the two companies cooperated on an urban computing project organized by the Fuzhou municipal government.

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

This is not the first time companies linked to Zhan have found themselves in hot water for circumventing rules on access to Taiwan’s chip technology. In 2021, Taiwanese prosecutors charged two Bitmain subsidiaries with illegally recruiting 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 technology race between the US and China. Fine components are needed for everything from rockets to electric vehicles and toasters, while the chip supply chain is a network of multinational companies in places like the Netherlands, South Korea and Taiwan.

TSMC chips have gone into Huawei’s latest advanced AI processor, the Ascend 910B chip set – according to one person familiar with the matter – a product the company is developing despite U.S. government efforts to limit its innovation in the field. The rise of artificial intelligence has sparked a global chip arms race, with companies like OpenAI using hundreds of thousands of chips simultaneously to train large language models, costing millions of dollars.

TSMC’s involvement in the matter creates problems for Washington, in part because the United States is so reliant on the semiconductor giant, which makes 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 as we put a lot of effort into ensuring economic security today,” Kilcrease said. The Commerce Department’s role is further complicated by the fact that it is providing subsidies to TSMC to build the Arizona plant under the CHIPS Act, legislation passed in 2022 aimed at strengthening the U.S. semiconductor supply chain, she added.

“There is a large, chaotic web of relationships here that needs to be sorted out and managed quite carefully at this stage,” she added. “I don’t think the U.S. government has any interest, either from a security standpoint or an economic standpoint, in striking TSMC.”

While export controls are often difficult to enforce, semiconductors are particularly challenging 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 access necessary chips.

“It has always been difficult to keep your finger on the pulse,” said James Lewis, senior vice president of the Center for Strategic and International Studies in Washington. “It’s a very open market. It’s very difficult to control it.”

For the new administration, regardless of who is elected president next week, questions about the effectiveness of chip export controls will be at the forefront of assessing the future of China’s policies, particularly on compliance in the private sector and enforcement in the public sector.

Paul Triolo, director of technology policy at Albright Stonebridge Group, said companies are trying to figure out how far they have to go to do due diligence: “The guidance is vague.”

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