US places trade restrictions on Tencent-Backed AI startup, citing national security concerns

Washington has placed Tencent Holdings Ltd. backed startup Zhipu on a trade restrictions blacklist, targeting one of the few emerging firms seen as leading contenders in the race to create a competitor to OpenAI’s ChatGPT. 

Just days before his departure, President Joe Biden’s administration announced a slew of trade restrictions. On Wednesday, the US Department of Commerce included the startup in its entity list, barring US suppliers from selling to the company without a license as part of a last-minute initiative by the outgoing administration.

The measure coincided with new regulations designed to prevent advanced chips, including AI accelerators, from reaching China.

Tencent Holdings Ltd. backed startup is considered one of China’s “AI Tigers” 

Zhipu is among a small group of promising AI developers in China that have attracted funding at high valuations. The firm originated from research at Tsinghua University and is backed by Tencent and Alibaba Group Holding Ltd.

Zhipu focuses on large language models similar to those from OpenAI. The firm is one of China’s four “AI Tigers”, representing its best hope of narrowing its technological gap with the US. The unicorn, valued at 20 billion yuan (US$2.7 billion) last September, counts Alibaba Group Holding, Tencent Holdings, and HongShan Capital Group as investors.

The Chinese start-up said it “strongly disagrees” with a US decision to add the company and its subsidiaries to an export blacklist.

Zhipu responded by stating that the US decision “lacked factual basis.” 

According to a WeChat post on Wednesday, Zhipu said:

Being included in the Entity List will not have a substantial impact on the company’s business.

– Zhipu

Existing export restrictions on advanced AI chips from US companies like Nvidia Corp. to China have already limited Zhipu’s access to cutting-edge AI development hardware. The company, which raised around $410 million in its latest funding round in December, claims to have tens of millions of users in China.

US export restrictions target Zhipu and other Chinese tech firms

Zhipu is among many Chinese firms recently targeted by US government blacklists. A week prior, Tencent was added to a Defense Department list of companies linked to the Chinese military, alongside Tesla Inc. battery supplier Contemporary Amperex Technology Co. Ltd.

Also included in the updated list is Sophgo, a Chinese chip designer that came under scrutiny last year after a chip it ordered from Taiwan Semiconductor Manufacturing Company (TSMC) was found to be identical to one used in a Huawei Technologies processor. Huawei has been on the Entity List since 2019.

Several industry advocacy groups and companies have expressed their opposition to the restrictions. The US-based Semiconductor Industry Association stated that policies to curb China’s AI development might backfire and “undercut US leadership and competitiveness” in the chip and AI sectors.

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