September 2nd, 2024

Overview

This week, we look at the recent violation of Japanese airspace by a Chinese aircraft, as well as loopholes in the U.S.-restricted NVIDIA market in China.

Chinese Plane Breaches Japanese Airspace

By Guest Contributor Zach Yacht

In a historic first, a Chinese surveillance aircraft recently violated Japanese airspace, leading to increased tensions between the two countries.

Chinese Aircraft Breaches Japanese Airspace: At 11:29 local time on Monday, August 26th, a Chinese Y-9 Surveillance plane flew inside Japanese airspace for two minutes, prompting the scrambling of Japanese Air Self-Defense Force jets to escort them away. Masataka Okano, the Japanese Vice Minister for Political Affairs, has “strongly requested” that airspace not be violated again. The aircraft breached Japanese airspace as part of a joint aerial exercise with Russia. This is the first time that a Chinese aircraft has violated Japanese airspace.

Japan’s Diplomatic Footing: Japan, a staunch American ally since World War Two, is home to numerous U.S. bases and enjoys close economic ties to the U.S., even more so since 241 tariffs were reduced or eliminated in 2020. This, combined with closer military ties to South Korea, including a joint naval drill, may drive China to show its force and test boundaries, as well as response time, to strengthen its position in the region. Japan’s location as an American ally is strategically significant, especially as China and Russia grow closer. Japan, being off the coast of both of them, provides enormous benefits to the United States. The Chinese relationship with Japan has always been tense, especially as Japan grows closer to Taiwan. Events such as this are a way to signal, both internationally and domestically, that China does not approve of the partnerships that Japan is both creating and maintaining.  

International Reaction: Following the incident, Chief Cabinet Secretary Yoshimasa Hayashi said that the event stands as a serious violation of Japanese sovereignty and threatens Japanese security. In response to the event, Lin Jian, the Deputy Director of the Information Department of the Ministry of Foreign Affairs, stated that China has “no intention of invading the airspace of any country,” even while Chinese ships are currently in the East China Sea. This behavior has also occurred hundreds of times near Taiwan in recent years. However, there have not yet been any American or Russian responses to this latest escalation. Additionally, a repeat incident is possible due to the increased frequency of joint Russian-Chinese military drills.

China’s Sneaky Subterfuge of Banned Nvidia AI Chips

By Guest Contributor Lindsey Spain

Despite United States export controls on Nvidia chips and graphics cards being sold in China, artificial intelligence engineers in the country are utilizing overseas brokers to obtain access to the restricted products.

U.S. Export Controls: In 2022, The U.S. Department of Commerce (USDOC) banned Nvidia from exporting their A100 and H100 graphics processing units (GPUs) to China. The A100 GPU, which is the GPU of choice for prominent AI companies such as OpenAI, is of particular concern to domestic authorities. Nvidia has hegemonized the AI chip market with a market share estimated to exceed 80% as of 2023, with its specialty being GPUs like those previously mentioned. The USDOC introduced heightened controls in early FY 2024 over several of Nvidia’s most popular GPUs to combat increasing Chinese influence over the AI sector. The Biden Administration has recently considered utilizing an export measure known as the Foreign Direct Product Rule, a provision introduced in 1959 to control the trading of U.S. technologies. 

Chinese Acquisition of GPUs: Despite increasing restrictions on the export of Nvidia GPUs to China, investors have still found ways of obtaining access to them, prominently through the use of offshore brokers. Of the 11 Chinese companies reportedly seeking access to restricted GPU services, four explicitly cited Amazon Web Services (AWS) as a cloud service provider. However, the majority of these companies accessed services through Chinese middlemen rather than AWS itself. For example, Derek Aw, a former Bitcoin miner, facilitated the sale of hundreds of AI servers containing Nvidia H100 GPUs for Emirati and U.S. investors, of which around 300 were placed in an Australian data center providing AI services for a Beijing-based company. 

Domestic Adaptions: In April of 2024, a Reuters review of hundreds of tender documents revealed that 10 Chinese research institutions and universities have utilized Nvidia chips through server products distributed by Dell Technologies and Super Micro Computer Inc. This came following the November 17th embargo expansion of chip products being sold to China. U.S. expansion of the current embargo status upon China could potentially incite reciprocal Chinese trade restrictions on metals, such as those used in the production of semiconductors, as has been shown to happen in previous years' relations with other actors, a strategy it has adopted consistently in recent years.