Will US cloud computing restrictions on China have any impact?

• China to be restricted from cloud computing technology?
• US-China computing cold war escalating.
• China warns that more restrictions will trigger retalliation.

In the tech cold war between the United States and China, the former has choked the latter’s access to crucial technologies while trying to limit the reach of Chinese tech and telecommunication companies abroad. Since the Biden administration first imposed export controls against China in October, Washington has increasingly found new targets to restrict. Now, it has its eyes on cloud computing services.

Cloud computing companies, which operate vast data centers that provide computing power and software to businesses, are slowly becoming a new technological front, just as China has pushed back on the US roadblocks. The goal for the US is to pull out all the stops and restrict Chinese companies – and the Chinese military – via  the computing power they need to advance. 

 “The US is considering restrictions on China’s access to computing over the internet, or the cloud, to limit that country’s ability to develop AI capabilities,” Bloomberg said, quoting a person familiar with the discussions.

The new restrictions being considered may require US cloud computing providers such as Amazon and Microsoft to gain government permission before providing service to Chinese clients, to prevent Chinese AI companies from “gaining technologies” by bypassing the US government’s export controls, according to a report by the Wall Street Journal.

Under the export controls released last October, the US government has banned the export of advanced chips, including the Nvidia A100, to China. Despite that, Chinese companies can access the chip from any cloud computing services provider, the Wall Street Journal report indicated. 

Will the cloud computing restriction impact China?

As per reports, the effort is a top priority for the Commerce Department, and officials are working to finalize the plan this summer. However, important details have yet to be decided. For context, International Data Corporation’s data showed that as of the end of 2022, Alibaba, Tencent, Huawei, China Telecom, and Amazon are the top five cloud computing companies in China, and the first four companies take over 64% of the market share. 

US-based Amazon accounts for a mere 8.6%. Based on the market share, most domestic cloud computing is dominated by Chinese tech companies, which have phased into a relatively established ecosystem. 

That also means American companies, including Amazon and Microsoft, only hold a relatively small market share. Even Chinese experts said the move, aimed at slowing China’s tech growth, may fail since cloud computing in China is already well developed. 

The broader Commerce Department proposal also suggests that the US would revise export controls to make it harder to sell some chips to China without a license. As per Tech Wire Asia’s recent report, the move is aimed in part at Nvidia Corp’s A800 chip, which the US-based company designed to fit within the limits of the export controls.

More retaliation from China

From the ban on Micron Technology, the first US chipmaker to have been slapped with restrictions from China, to controls on exports of some gallium and germanium products, an influential Chinese trade policy adviser told Reuters that it is “just a start.”

In short, recent Chinese moves indicate that Beijing will no longer sit and watch as the US slaps the Eastern powerhouse with more export controls. Instead, China intends to ramp up a tech fight with Washington.

On July 5, former Vice Commerce Minister Wei Jianguo told the China Daily newspaper that countries should brace for more should they continue to pressure China, describing the controls as a “well-thought-out heavy punch” and “just a start.”

“If restrictions targeting China’s high-technology sector continue, countermeasures will escalate,” added Wei. Even analysts have described the move to restrict rare earth exports as China’s second – and bigger – countermeasure in the long-running US-China tech fight after it banned some vital domestic industries from purchasing from US memory chipmaker Micron in May.

Interestingly, in her upcoming visit to China, US Treasury Secretary Janet Yellen is expected to stress the need for both countries to “responsibly manage” their relationship, “communicate directly about areas of concern and work together to address global challenges.” Unless there is a truce between these two countries soon, the tit-for-tat tech war is anticipated to continue and amplify to something far more significant than it already is.

Escalation of the tech war can only go so far before it spills over into other forms of hostility.