OpenAI and Google Provided AI to Subsidiaries of Blacklisted Chinese Firms, FT Reports

OpenAI and Alphabet's Google have provided advanced artificial intelligence models to the Singapore-based subsidiaries of several Chinese technology companies blacklisted by the Pentagon, according to a report from the Financial Times. The parent companies, which include Alibaba, Baidu, and Tencent, appear on a U.S. government list of entities alleged to have links to China's military.

Details of the AI Access

The Financial Times reported that both OpenAI and Google confirmed they had provided AI services to the Singaporean affiliates of the Chinese tech giants. These sales are currently legal because U.S. restrictions do not broadly prohibit Chinese-owned companies from accessing advanced AI models when operating outside of mainland China.

The parent companies of these subsidiaries are on the Pentagon's 1260H list, which identifies entities the U.S. alleges are contributing to China's military-civil fusion strategy. This distinction between a Chinese parent company and its foreign subsidiary has created a gray area for U.S. technology exports.

Company Responses and Safeguards

According to the report, the AI providers have different approaches to managing access from Chinese-owned entities.

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• OpenAI told the Financial Times it blocks direct access to its models from China but allows some Chinese-owned firms to use its services in other jurisdictions where safeguards can be enforced. The company reportedly suspended access for an Alibaba-affiliated user last month over concerns about "distillation"—a process where a model's outputs are used to train a competing AI system—and reported the activity to the U.S. government.
• Google stated its AI services are available in markets like Singapore, subject to its usage policies, but acknowledged that geographical restrictions alone are not sufficient to prevent sophisticated users from circumventing controls.
• Anthropic, a competitor, has adopted a stricter policy, prohibiting Chinese companies and any foreign entities they own from accessing its frontier AI models.

Regulatory and Market Implications

The development has renewed calls in Washington for the U.S. to implement export controls on advanced AI software, similar to the stringent restrictions already imposed on high-end semiconductor exports to China. Proponents of tighter controls argue that access to top-tier U.S. AI models could help advance China's technological and military capabilities.

Market reaction to the news was muted. The report noted that shares of Alphabet (GOOGL) and the U.S.-listed shares of Alibaba (BABA) were little changed in premarket trading following the publication.