The U.S. decision to add eight Chinese companies to its trade blacklist strikes directly at China’s ambitions in artificial intelligence, threatening its companies’ access to crucial components and relationships with U.S. firms.
Some of the companies affected are among China’s most advanced in core areas of AI, including technology involved in recognizing sounds and faces, autonomous driving and surveillance.
Although many of the companies targeted have likely been stockpiling components and can shift to back-up supply chains, cutting-edge research efforts could slow, given their heavy reliance on advanced U.S. chips. In the long term, the move could spell an end to partnerships with U.S. companies and institutions that go back years and limit access to top overseas talent, experts said.
The U.S. Commerce Department added 28 entities in total to its blacklist — the eight companies and 20 other organizations, mostly local public-security bureaus — citing their role in Beijing’s repression of Muslim minorities in China’s northwest Xinjiang region. The sanctions target companies and Xinjiang police units that are customers of U.S. technology, rather than officials responsible for the policies. The move, which blocks the sale of American-sourced products and technology without a license, comes just days before high-level trade talks are set to resume in Washington.
Beijing’s response to the sanctions was muted. The Commerce Ministry confirmed Tuesday that China would go ahead with the trade meetings, though a Foreign Ministry spokesman, responding to a question about the sanctions, urged the U.S. to “correct its mistakes.”
The U.S. move, coming on top of restrictions against other Chinese companies such as Huawei Technologies Co., is likely to deepen a growing schism between the U.S. and China’s technology ecosystem, said Matt Sheehan, a fellow at MacroPolo, part of the Paulson Institute think tank that focuses on the Chinese economy.
“It’s leading a lot of private tech companies (in China), as well as the government, into a defensive crouch, where they feel like they need to band together and really once again turn inwards,” he said.
Artificial intelligence is a key pillar in China’s ambitions to dominate the global technology market, with a stated goal of becoming a global AI leader by 2030. Unlike in the semiconductor and aerospace sectors, where state support has proved crucial, private companies have successfully taken the lead in developing China’s AI sector.
A major challenge for these companies now will be to secure access to cutting-edge processors where the market is currently dominated by American companies. That includes powerful graphics-processing units made by Nvidia Corp., of Santa Clara, Calif. The chips are used by AI companies to crunch the massive amounts of data that feed algorithms underpinning AI programs. Nvidia is widely seen as a leader in the field without a clear non-U.S. alternative.
“There’s a reason everybody uses Nvidia GPUs — they’re the best in class,” said Jeffrey Ding, a researcher at the Centre for the Governance of AI at Oxford University. “Even if you switch, it’s going to have a cost on your efficiency; it’s going to have a cost on your margin.”
An Nvidia spokesman declined to comment.
China has named at least 15 companies to take a lead in developing specific areas related to AI. They include five added to the U.S. blacklist: voice-recognition company iFlytek Co. , surveillance-system producer Hangzhou Hikvision Digital Technology Co., facial-recognition business companies SenseTime Group Ltd. and Megvii Technology Ltd. and Yitu Technology, which focuses on AI applications in cities, health care and business.
Their addition to the list mirrors the action taken by the U.S. Commerce Department against Chinese telecom giant Huawei earlier this year. That company, which bought $11 billion of American technology last year, has been working to develop alternative supply chains and develop its own chips and other parts.
Though none of the latest companies have the scale of Huawei, some are leaders in their field. With about $7 billion in revenue last year, Hikvision is the world’s largest maker of video-surveillance equipment. Megvii, a Beijing-based developer of facial-recognition technology, recently filed paperwork for a public stock offering in Hong Kong.