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Zhipu AI added for aiding China's military modernization

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Sophgo chip was found in Huawei Ascend 910B

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New rules affect controls over flow of chips, equipment to

China

(Adds Zhipu AI comment in paragraph 8)

By Karen Freifeld

WASHINGTON, Jan 15 (Reuters) - The Biden administration

added more than two dozen Chinese entities to a U.S. restricted

trade list on Wednesday, including Zhipu AI, a developer of

large language models, and Sophgo, a company whose TSMC-made

chip was illegally incorporated into a Huawei artificial

intelligence processor.

The Commerce Department also strengthened controls on the

flow of chips to China to better prevent diversion to Huawei.

Zhipu AI, Sophgo and entities linked to them were among 25

China-based companies and two Singapore-based companies added to

the U.S. Commerce Department's Entity List, according to

government postings. Companies on the list cannot receive goods

or technology exports without a license, which is generally

denied.

Zhipu AI, whose investors have included Alibaba ( BABA )

and Tencent ( TCTZF ), was added for advancing China's military

modernization through advanced AI research.

Sophgo drew attention after a chip found on Huawei's Ascend

910B multi-chip AI system matched one it ordered from Taiwan

Semiconductor Manufacturing Co. ( TSM )

Huawei was placed on the Entity List in 2019 and is now at

the center of China's AI chip ambitions.

Sophgo is among numerous companies that have been punished

for helping Huawei. Late last year, the Commerce Department

added other companies viewed as part of Huawei's shadow network

to the restricted trade list.

In a statement on its WeChat account late on Wednesday,

Zhipu said the decision lacked a "factual basis" and its

inclusion would not make a substantial impact on its business as

it had mastered large language models' end-to-end core

technology.

Sophgo, an affiliate of bitcoin mining equipment supplier

Bitmain, and Huawei did not immediately respond to a request for

comment on the latest additions to the Entity List.

In a statement on its website posted after the initial

allegations in October, Sophgo said it "has never been engaged

in any direct or indirect business relationship with Huawei."

The U.S. on Wednesday also tightened rules on exports of

semiconductors that can be used for AI.

The new rules follow curbs the U.S. placed on TSMC after

discovery of its chip in Huawei's Ascend 910B multi-chip system.

As Reuters exclusively reported, the U.S. in November ordered

TSMC to halt shipments of certain advanced chips.

ADDING NEW CONTROLS

The latest regulation adds new controls for chip factories

and packaging companies seeking to export certain chips,

building on earlier measures aimed at hampering China's access

to chips that could help its military.

The new restrictions affect chips at 14 or 16 nanometer

nodes or below that meet certain parameters and can be used in

AI applications, and impact companies beyond TSMC.

A TSMC spokesperson declined comment. Samsung,

which also may be affected by the changes, did not immediately

respond to a request for comment.

Chipmakers can bypass licensing requirements if certain

conditions are met, such as working with trusted chip packagers

and approved designers subject to due diligence and reporting

obligations.

"We are holding foundries accountable for verifying that

their chips are not being diverted to restricted entities,"

Commerce official Alan Estevez said in a statement.

The rule also imposes tighter restrictions around a type of

memory known as DRAM that is needed to make high bandwidth

memory, which is used in AI processors.

The DRAM change will likely affect goods and technology

destined for Chinese memory chip maker Changxin Memory

Technologies, also known as CXMT, by imposing controls on more

of its facilities, according to chip experts. CXMT did not

immediately respond to a request for comment.

Companies are added to the Entity List for activities viewed

as contrary to U.S. national security or foreign policy

interests.

Besides Zhipu AI, nine other entities were added on

Wednesday over military modernization through advanced AI

research, most of them also Zhipu entities. One company was

listed for helping develop lithography equipment for advanced

chip factories in China.

Sixteen companies listed, including the Sophgo units, are

related to the development of chips that further China's

advanced weapons systems, weapons of mass destruction and

high-tech surveillance applications, and were also targeted

because they pose a risk of diversion to Huawei, according to

the Commerce Department.

A spokesperson for the Chinese embassy in Washington did not

immediately respond to a request for comment.

Wednesday's rules are among a slew of export restrictions

issued the last weeks of the Biden administration. On Monday,

the U.S. put out an ambitious plan to control the development of

advanced AI worldwide.