The United States has moved to close a potential loophole that may have enabled Chinese companies to access some of the world’s most advanced artificial intelligence chips through overseas subsidiaries.
The new guidance, issued by the US Department of Commerce’s Bureau of Industry and Security (BIS), clarifies that export licence requirements apply not only to entities based in China but also to Chinese-headquartered companies operating abroad.
The move is aimed at preventing advanced American semiconductor technology from reaching Chinese firms despite existing export restrictions.
Concerns Over Nvidia’s Blackwell Chips
The guidance follows concerns that advanced processors, including those produced by Nvidia, may have been exported to subsidiaries of Chinese AI companies located in countries such as Malaysia.
According to reports circulating in Washington, the loophole potentially allowed overseas branches of Chinese firms to purchase high-end AI chips without requiring the same level of scrutiny applied to entities operating inside China.
One industry source familiar with semiconductor supply chains estimated that hundreds of thousands of advanced chips may have been exported through such channels.
Loophole Linked To Earlier Policy Change
The issue emerged after the Trump administration decided in May 2025 not to enforce the AI Diffusion Rule introduced during the final months of the previous administration.
That decision removed certain global licensing requirements governing access to advanced AI chips, creating uncertainty over how export controls applied to Chinese-owned entities operating overseas.
The new guidance seeks to clarify those requirements and close that gap.
National Security Concerns
US officials have increasingly viewed advanced semiconductors as a critical component of technological competition and national security.
Washington has spent years attempting to limit China’s access to cutting-edge chips needed for artificial intelligence, military applications and advanced computing.
Former US State Department official Chris McGuire described the loophole as a major vulnerability, arguing that Chinese firms may have acquired advanced AI chips at significant scale through overseas subsidiaries.
Some Concerns Remain
While the new guidance closes one route for acquiring advanced AI chips, experts say other concerns remain.
McGuire noted that the measures do not address questions surrounding supply-chain due diligence by manufacturers such as TSMC, nor do they require data centres already operating advanced AI systems to stop using the hardware.
As a result, Washington’s effort to restrict China’s access to advanced semiconductor technology remains a work in progress.
(with inputs from Reuters)
