Why has OpenAI blocked API traffic from China?

What is the context and significance of this development?

First, what has OpenAI said?

A Reuters report from Beijing published on June 25 said “Chinese users of the platform (OpenAI) have received emails warning they are in a “region that OpenAI does not currently support” and that additional measures to block API traffic from unsupported regions would be taken starting July 9.

The report quoted an OpenAI spokesperson as saying, “We are taking additional steps to block API traffic from regions where we do not support access to OpenAI’s services”. A similar statement was reported by Bloomberg.

An API, according to a definition by the tech giant IBM, are “a set of rules or protocols that enables software applications to communicate with each other to exchange data, features and functionality”.

APIs are vital for quickly and efficiently building applications and web programmes, and are behind features seen across the Internet. Navigation systems in apps for example, use APIs to display static or interactive maps — so, the API of Google Maps could be used by food delivery or goods delivery platforms to manage location tracking.

How does OpenAI’s decision impact China?

On July 9, The Guardian reported that OpenAI’s decision, while causing “significant concern” in China, had “also created an opportunity for domestic AI companies such as SenseTime, which are scrambling to hoover up OpenAI’s rejected users”.

SenseTime, a top Chinese AI company, had unveiled its latest multimodal AI model, SenseNova 5.5, at the World AI Conference in Shanghai earlier this month, the report said.

The Global Times, which is published under the auspices of China’s state-run People’s Daily, said that “the ban was not anticipated to have a significant impact on the domestic industry as OpenAI’s products were not officially available in China anyway”.

In fact, the restriction could “motivate Chinese developers to redouble their efforts to compete in the AI development and application sector”, the report said.

Also, several tech outlets have reported that Microsoft’s Azure AI feature, which helps build apps and offers customisable APIs, remains available in China. Azure operates in China as a joint venture with a local company. This was mentioned in The Global Times report.

The Global Times quoted unnamed “industry insiders” to claim that “most Chinese companies will suffer little”, and that “they will either transfer to domestic large models, or purchase OpenAI’s services via Microsoft or other providers outside China”.

Chinese domestic large model developers are “ready to take customers from OpenAI”, the report said. “Companies like Moonshot, Zhipu AI, Baidu, Alibaba, Zero One Wanwu, and other large model manufacturers, took immediate action to release their “relocation plan” for OpenAI API users,” it said.

Soon after OpenAI’s statement on APIs came out, Baidu, which runs China’s biggest Internet search engine, said it would allow new users to migrate to its programmes. This would include access to its Ernie 3.5 AI chatbot.

Why did OpenAI take this decision?

OpenAI did not cite a reason. However, the US has taken a series of policy decisions in recent months restricting technology access to China.

As relations between the countries have soured in the last few years, and their geopolitical rivalry has increased, the US has cited national security and privacy concerns relating to Chinese companies. It has argued that since all Chinese companies are ultimately bound by control from the Communist Party of China (CPC), they could be forced to share the private data of Americans.

“The PRC (People’s Republic of China) has poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030. It is using these capabilities to monitor, track, and surveil their own citizens, and fuel its military modernization,” Thea D Rozman Kendler, the US Assistant Secretary of Commerce for Export Administration, had said back in 2022.

The Global Times report, which was published on July 10, noted that “just a few days before OpenAI made the move, the US Department of the Treasury issued draft rules to ban or require notification of certain investments in AI and other technology sectors in China that could threaten US national security”.

Also, China has tightened “requirements for cross-border data transmission and processing”, and OpenAI now faces “more complex compliance procedures and high costs in the Chinese market”, it said.

Where does China stand in AI development?

According to Chinese state media outlet Xinhua, China has more than 4,500 AI companies at present. Its core AI industry reached a scale of more than $81 billion in 2023, up 13.9% year-on-year.

A recent report from the World Intellectual Property Organization (WIPO) said China leads the world in patents on generative AI, a subset of AI tech for creating text, images, etc. China filed patents for more than 38,000 generative AI inventions between 2014 and 2023, while the US filed 6,276 patents over the same period.

“Both the US and China are leaders in the generative AI field. But the US does better in cutting-edge and underlying technology while China has certain advantages in industrial application and service design,” The Global Times said, quoting Ni Kaomeng, initiator of the China AIGC (AI-generated content) Industrial Alliance, a Chinese industry group.