Washington Tried to Box In China’s AI Ambitions. The Industry Found a Way Through
Chinese AI companies are advancing faster than US export controls can keep up. Alibaba, ByteDance, Tencent, and Moonshot AI are taking different routes to stay competitive, including exploiting regulatory gray areas Washington is now racing to close.
The loophole that Washington missed
US export controls ban the physical sale of advanced Nvidia chips to Chinese companies. They don't ban remote access to those chips.
Chinese AI firms have exploited this gap by routing compute through data centers in Thailand, Malaysia, and Japan. Institute for AI Policy and Strategy's Cassia King confirmed the arrangement is currently legal. "It does not cover remote access to those chips," she said.
Moonshot AI reportedly trained its Kimi K3 model using Nvidia’s restricted GB300 chips through a facility in Thailand, according to White House official Michael Kratsios.
ByteDance took a similar route, reportedly tapping Nvidia compute in Malaysia through Singapore-based cloud provider Aolani.
Demand for this kind of infrastructure is accelerating. Real estate firm JLL estimates global data center capacity could roughly double to 200GW by 2030. Malaysia, Indonesia, and Thailand alone have 31 data centers of at least 100MW in the pipeline, up from just two today.
Washington is trying to close it
A proposed law called the Remote Access Security Act, or RASA, would bring remote cloud access to restricted chips within the scope of US export control authority. The House passed it in January. The Senate hasn't acted.
Even if RASA passes, Michelle Nie, a visiting fellow at the Center for a New American Security, says it wouldn't immediately solve the problem.
The law would establish the authority to regulate remote access, but a separate rulemaking process would still be required. Cloud providers are also expected to push back on the compliance burden.
King says the Bureau of Industry and Security could move quickly with White House backing, potentially issuing a rule within days. The bigger challenge would be making it enforceable.
Nvidia sits in the middle
Nvidia isn't entirely shut out of the Chinese market. Beijing recently allowed ByteDance and Tencent to each receive roughly 10K H200 processors. Other Chinese companies could receive similar approvals, according to the Financial Times.
Chinese companies would potentially buy roughly 1.5M H200 chips, representing roughly $30B in revenue, according to KeyBanc analyst John Vinh. Nvidia has agreed to pass a 25% cut of any such sales to the US government.
Nvidia's earnings on Aug. 26 will be a key moment. Citi analyst Atif Malik reiterated a Buy rating and $300 target price, arguing Nvidia is likely to deliver sales ahead of market expectations.
Alibaba is betting on full-stack dominance
While the chip access debate plays out, Alibaba is building from the inside out. It holds roughly 37% market share in China's cloud market, according to research firm Omdia. Huawei sits at 17% and Tencent at 10%.
Alibaba designs some of its own chips. It also offers consumer-facing AI through its Qwen app, coding tools for developers, and enterprise agents. Its open-weight Qwen models have hit 3B downloads, passing Meta and Google.
"Companies with full-stack capabilities, from chips and cloud infrastructure to models and applications, like Alibaba, are better positioned to lead."
Alicia Yap, Citigroup
Analysts expect Alibaba to report 8.4% revenue growth for the June quarter, the fastest in nearly three years. JPMorgan analyst Alex Yao wrote that earnings may be "better than feared" thanks to revenue acceleration and margin improvement in its cloud business. Alibaba now trades at a valuation premium to Tencent for the first time in over a decade.