(Preview) New Export Controls in Multiple Sectors; Q3 GDP and the Fifth Plenum; Europe Presses Forward; OpenAI and Nvidia Chips

Andrew Sharp (0:04)

Hello, and welcome to Sharp China. I'm Andrew Sharp, and you are listening to a free preview of today's episode.

Hello, and welcome back to another episode of Sharp China. I'm Andrew Sharp, and on the other line, Bill Bishop. Bill, how are you doing?

Bill Bishop (0:21)

I'm doing well. Hello, everybody.

Andrew Sharp (0:23)

It's good to be back. Here we are rolling through October.

We've got some boring machine news later in the episode speaking of rolling, but we will begin with all kinds of different export controls, including on boring machines, but more notably on AI and all sorts of AI related technologies. Bloomberg wrote last week, China proposed adding artificial intelligence technologies to its export control list, potentially restricting overseas transfers of AI models and chip designs in an effort to tighten control over homegrown advancements in a strategically important sector. The draft proposal covers 23 AI technologies, including large language models, agents, chip designs and computing clusters. Restricted technologies would include model weights and source code for products exceeding certain performance thresholds.

And as I said, this is not the only area of export control intrigue this week. But with respect to AI, this is in some respects the least surprising news of the year. I can't say I'm shocked that the PRC is going this direction. In practical terms, doesn't change anything for companies around the US that are using Chinese models, companies around the world that are using Chinese models. What do you think? What do you make of this news?

Bill Bishop (1:48)

So it's not clear. This is a draft and these drafts sometimes do get changed in material ways based on feedback. So that is certainly possible.

From what it sounds like, everything that's already been released is fine. You're not going to suddenly lose access to the current...

Andrew Sharp (2:05)

You're not clawing back access, yeah.

Bill Bishop (2:07)

Right. But it raises the uncertainty going forward. For companies that say, want to take one of these models, download them and then try and build on top of it.

You now have to wonder, will you be able to get updates as these models get better, or are you going to be stuck at a certain, sort of stuck in today, and then ultimately, or over time, you end up in a disadvantage. And so that is, I think, the biggest thing to look for is just really how to deal with that uncertainty. And I think there was a bit of a freak out, and I'm not sure it was completely warranted, but it certainly does again raise uncertainty and potentially raise risks. And I think it's an interesting, it's not surprising that the Chinese government does this for variety of reasons, especially given how powerful their models are becoming, getting relatively close to the frontier. But I think it's an interesting opportunity for the AI open model creators in other markets like the US, where the US seems like it's now starting to catch up with some of its open models. It's not there yet, but...

Andrew Sharp (3:14)

And when you say it's an opportunity, if you're an American open source model maker, you can point to these rags and say, look, the access to Chinese open source is conditional, or open weight models, not purely open source models. It's conditional.

Bill Bishop (3:29)

Will be conditional in the future.

Andrew Sharp (3:30)

Yeah. Yeah.

Bill Bishop (3:32)

And the problem, of course, is it could be conditional here in the US. I mean, look what the Trump administration did to Anthropic, right? Where it was...

Andrew Sharp (3:38)

Well, and the safety concerns around open source are continuing, and who knows how much longer open source will be allowed to proliferate, but that's a risk with whatever open source model they're going to be using going forward.

Bill Bishop (3:52)

And a couple of other things that are interesting is one that in this draft, there was a specific carrot for joining China's World AI Cooperation Organization, where according to the spokesperson for the Ministry of Commerce, who explained these rules or introduced the rules or the draft, that there'll be additional, quote, facilitation and support for technology exports that support cooperation among members, right? And that is in some ways kind of the Chinese rival to the US's PAC silica.

Andrew Sharp (4:21)

Yeah. So basically, access will be streamlined for anybody who's part of the club, the World AI Organization.

Bill Bishop (4:28)

That's what it sounds like. And then if you're a Chinese model maker and you're controlling the model and serving it through the cloud, then I think you're not subject to these. So I mean, but to the one, to the businesses that want to download these models and then customize to build in their own systems, the Chinese models may be less attractive going forward. Maybe, but it's still unclear. But that I think is one of the bigger risks here. On the other bits from the Friday release, there was controls around photovoltaic solar technologies and biomedicine. And the solar ones are quite interesting. I think those ultimately, Elon Musk will have to build his own or find his own sources sourcing for all the solar panels he wants for global data centers.