The United States has moved to shut down a regulatory loophole that may have enabled Chinese technology companies to obtain access to some of the world’s most advanced artificial intelligence chips despite existing export restrictions.
According to a Reuters report, the US Department of Commerce issued new guidance on May 31 aimed at preventing Chinese firms from using overseas subsidiaries to acquire cutting-edge American semiconductor technology without obtaining special licenses.
Loophole Allowed Purchases Through Overseas Subsidiaries
For nearly a year, Washington has sought to restrict China’s access to high-performance AI chips produced by companies such as NVIDIA and Advanced Micro Devices, citing national security concerns.
However, the guidance addresses a previously overlooked pathway through which Chinese companies could reportedly use foreign-based subsidiaries in countries such as Malaysia to purchase advanced processors that would otherwise be restricted.
The loophole allegedly allowed these overseas branches to acquire high-end AI hardware without requiring export licenses from US authorities.
How the Gap Emerged
The issue reportedly traces back to May 2025, when the administration of US President Donald Trump decided not to enforce an “AI Diffusion” rule introduced during the final phase of the previous administration.
As a result, foreign subsidiaries of Chinese firms were reportedly able to purchase some of America’s most sophisticated AI chips, including:
- NVIDIA Blackwell processors
- NVIDIA Rubin processors
- AMD MI350X accelerators
These chips are considered among the most powerful available for training and operating advanced AI systems.
New Rules Tighten Restrictions
Under the updated guidance, any company headquartered in China will now face licensing requirements for acquiring restricted AI technologies, regardless of where its subsidiary is physically located.
The change effectively extends export-control scrutiny beyond mainland China and targets corporate structures that may have been used to circumvent existing restrictions.
US officials hope the move will prevent future transfers of sensitive AI hardware that could support advanced commercial or military applications.
Existing Hardware Will Not Be Recalled
Despite tightening future controls, the new policy stops short of forcing companies to surrender or deactivate hardware already acquired through overseas subsidiaries.
International data centres that previously purchased the chips will be allowed to continue operating them. In addition, American technology firms will still be permitted to provide maintenance and technical support for existing AI infrastructure already deployed by Chinese-affiliated entities.
Strategic Importance of AI Chips
The move highlights the growing importance of advanced semiconductors in the global competition for AI leadership. High-end processors are essential for training large AI models, powering data centres, and supporting emerging military and intelligence applications.
Washington has increasingly viewed access to cutting-edge chips as a strategic issue, leading to successive rounds of export controls aimed at slowing China’s development of advanced artificial intelligence and supercomputing capabilities.
While the full extent of any chip acquisitions made through the loophole remains unclear, the new guidance signals a broader effort by the United States to tighten enforcement of technology export restrictions and close avenues for circumvention.
