China Tightens State Grip on AI Models and Chips

China’s proposed export rules would put advanced AI models, chip-design technology and large computing systems under tighter state control, while letting overseas customers access Chinese AI through websites and cloud platforms. The draft rules, released October 16, also made registration requirements for certain technology transfers effective immediately. The state wants to decide what can cross its borders—and who can own or control it.

Who Controls the Technology

The proposals would add 23 AI-related technologies to China’s list of exports that are banned or restricted. They include advanced models, agents that perform tasks with limited human direction, and technology used to design chips and run large computing facilities. A source familiar with the matter said China is expected to adopt the proposals by the end of the year and issue implementation guidelines later. The source requested anonymity because the timetable wasn’t public.

The controls could shape how Chinese AI companies run advanced models on overseas data centres, build international partnerships, and handle foreign investment or ownership of AI assets. DeepSeek, Moonshot and Z.AI already offer models to overseas customers through websites or cloud platforms. Researchers at major Chinese AI labs are seeking clarification on whether they can train or operate their most advanced models on foreign-owned overseas servers.

One person briefed on the discussions said developers might, in a worst-case scenario, need to maintain separate domestic and overseas versions of the same downloadable model. That’s a possible new burden for companies caught between governments managing access to computing power, hardware and AI technology.

The draft sets three tests for which models it covers: training that requires 10 to the power of 26 calculations; a model size of at least 2 trillion parameters; or a ranking among the world’s top 10 in certain assessments of performance, use or efficiency. Parameters are numerical settings a model learns during training. The ranking test could capture smaller systems that perform especially well at specialized tasks, but the draft doesn’t say which rankings count.

Rules With Fuzzy Edges

Companies have asked for clearer boundaries. Liu Jing, a senior partner at Beijing Dacheng Law Offices who participated in consultations with policymakers, said companies wanted more clarity about the tests. Chinese law firm Han Kun questioned how regulators would count models that activate only some components for each task. The firm also said a proposed chip-design provision could reach beyond the most advanced products because it sets no minimum performance requirement.

The proposals are open for public comment until November 15. China’s commerce ministry didn’t respond to a request for comment. The draft would simplify approvals for Chinese companies building and operating their own computing facilities abroad, but wouldn’t expressly simplify technology transfers to foreign customers seeking to build equivalent systems, Han Kun said.

The controls also cover methods for coordinating more than 10,000 AI chips. Registration requirements effective October 16 cover transfers that put Chinese technology under foreign ownership or control, including qualifying transactions already under way, according to an analysis by law firm Fangda. Beijing’s move earlier this year to order Meta to unwind its more than $2 billion acquisition of Chinese-founded AI startup Manus has shown the risks facing foreign buyers.

Alfredo Montufar-Helu, Beijing-based managing director at consultancy Ankura, said: “The structure the leadership prefers, with IP and R&D kept onshore and operations and access sold abroad, is the one the market was already converging on.” He said security concerns—including keeping powerful cyberattack capabilities and sensitive data in China—accompany the commercial aim of retaining technological advantages.

Yang Jingru, a partner at law firm Jincheng Tongda & Neal, described the approach as a counterpart to U.S. restrictions on China’s access to advanced technology and investment. “The US controls the inflow of computing power, hardware and capital, while China is beginning to systematically manage the outflow of models and technological assets,” Yang wrote. The account describes government controls and corporate decisions; it offers no example of a community-run alternative or mutual-aid response.

Chip Controls Cross Borders

Malaysia’s customs department said Wednesday it had seized 30 servers equipped with advanced AI chips in a suspected export-control violation. Officials believe a syndicate used Malaysia as a transit hub to re-export the chips to another Asian country. Malaysia introduced permit requirements last year for the export, transit and transshipment of high-performance AI chips of U.S. origin, under pressure from the U.S. to prevent sensitive technology from being rerouted to China through third countries.

The shipment, worth about 50 million ringgit ($12.2 million), was intercepted October 15 in the free trade zone at the country’s main airport. Airport customs director Aspalila Ag Tuah told reporters the servers came from an Asian country and were falsely declared as electric components before being re-exported to another Asian country without the required permit.

“The syndicate is using Malaysia as a transit destination to ensure there would be no restrictions imposed while the servers are exported to the next destination,” the customs department said. Aspalila said investigators believed the shipment was linked to a syndicate behind five attempted smuggling operations, including a June seizure of 72 servers containing advanced AI chips at the airport’s free trade zone. A Malaysian firm that facilitated the shipment has been called in to assist the investigation. Aspalila declined to provide more details about the chips’ origin or final destination, saying the case was under investigation.