The US Department of Commerce has taken steps to close a loophole that may have allowed some of the world’s most advanced artificial intelligence chips to reach Chinese companies through their overseas operations.
The guidance, released on Sunday, targets exports of cutting-edge processors such as Nvidia’s Rubin and Blackwell chips and AMD’s MI350x chips. These processors are among the most powerful AI chips currently available and are critical for developing advanced artificial intelligence systems.
The move suggests that Chinese companies may have been able to access these chips through subsidiaries located outside China for nearly a year, despite Washington’s efforts to restrict Beijing’s access to advanced semiconductor technology.
Chips may have reached Chinese firms through overseas subsidiaries
According to the Commerce Department’s new guidance, advanced US-made AI chips may have been reaching subsidiaries of Chinese technology companies operating in countries such as Malaysia.
The guidance was posted on the department’s website on Sunday and comes after concerns that a gap in export controls had allowed Chinese-linked companies to buy the chips without facing the same restrictions imposed on businesses inside China.
Officials have not said exactly how many chips may have been exported through this route. However, one semiconductor industry source with extensive knowledge of global supply chains estimated that the number could be in the hundreds of thousands, according to CNBC.
Nvidia says the guidance changes nothing for the company
Speaking to Reuters, a company official from Nvidia said the new guidance does not change the situation for the chipmaker. According to the official, Nvidia was already unable to ship such chips because the Commerce Department had previously informed the company through a formal letter that a license was required.
AMD, another major manufacturer of AI chips, did not immediately respond to requests for comment
New rules make licensing requirements clear
In its unusual weekend announcement, the Commerce Department said it would enforce licensing requirements for advanced AI chips when the buyer is a company headquartered in China, even if that company is operating from another country.
The department has effectively made clear that Chinese firms cannot avoid US export controls simply by making purchases through overseas subsidiaries.
How the loophole was created
The opening dates back to May 2025, when the Commerce Department announced it would not enforce the AI Diffusion Rule introduced during the final days of the Biden administration.
That rule was designed to control global access to advanced AI chips and included licensing requirements for exports.
Critics argue that the decision not to enforce the rule created a gap that allowed some Chinese companies operating abroad to buy advanced chips without first obtaining a US license.
Experts warn of large-scale purchases
Chris McGuire, a former State Department official who specialises in technology and national security issues, said on social media that the loophole allowed overseas subsidiaries of Chinese firms to purchase Nvidia Blackwell chips without obtaining a license.
“This is a HUGE problem,” McGuire wrote. “Chinese companies have been buying these chips, very likely at scale,” McGuire said. The new guidance appears to shut down that pathway, but he believes another weakness still remains.
According to McGuire, the latest guidance does not restore a requirement that would force Taiwan-based chip manufacturing giant TSMC and other semiconductor foundries to carry out additional checks to ensure that advanced AI chips are not ultimately being made for Chinese front companies.
Existing chips can still be used
The new guidance also does not require data centres that already possess these advanced chips to stop using them. Likewise, companies that provide maintenance and support for advanced computing systems, including AI servers containing these chips, are not being ordered to halt their services.
As a result, while the US has moved to tighten controls on future exports, the guidance does not affect chips that have already been purchased and deployed.