US-based cloud companies may need to reveal client details

The US government had also asked the Commerce Department in October last year to demand the cloud companies to reveal the client names that used their cloud infrastructure.

Implications of the new proposal

The proposed change can restrict the pace of innovation in the Chinese AI ecosystem as the Chinese AI developers may be subjected to greater scrutiny by the US Government.

“On the other hand, for local alternatives like Baidu ERNIE, Alibaba Tongyi Qianwen, Tencent Hunyuan, Huawei Pangu, Zhipu GLM, and Baichuan, this becomes important leverage for them to focus on their innovation despite the performance gap. It will also force Chinese vendors and enterprises to further prioritize localization, accelerating the evolution of AI software and hardware ecosystem in the long run,” said Charlie Dai, Vice President and Principal Analyst at Forrester.

The restrictions may have implications for the global AI ecosystem as well. “In general, this will cast a shadow over the global AI ecosystem. Firstly, foreign companies, particularly those from China, may face greater scrutiny and oversight from the US government. This increased attention could lead to delays, additional costs, and potential restrictions on the development and deployment of AI applications,” Dai said.

In addition, the requirement to disclose sensitive information about technology, data usage, and business operations can raise significant concerns about IP protection. Companies may be hesitant to share proprietary information that could be misappropriated or used by competitors.

“Thirdly, greater transparency could expose sensitive data and increase the risk of data breaches or other security incidents. This is particularly concerning for enterprises handling sensitive customer or business data. Finally, regulatory uncertainty can dampen investment in AI research and development, particularly if companies fear that today’s acceptable practices might become subject to new restrictions tomorrow,” explained Dai from Forrester.