The U.S. government is tightening export controls on advanced artificial intelligence (AI) semiconductors by extending them to overseas subsidiaries of Chinese firms. The move targets a “backdoor” tactic through which Chinese companies acquired cutting-edge chips via their overseas branches to bypass existing restrictions.
According to the U.S. Department of Commerce, on May 31 local time, licensing requirements for high-end AI chips will now apply to entities both inside and outside of China. Industry observers noted that the announcement, made on a Sunday, was highly unusual, underscoring the urgency of the issue.
While the latest AI chips--such as Nvidia's Blackwell architecture--are strictly banned for export to mainland China, a significant loophole allowed Chinese subsidiaries located in regions like Malaysia to procure them. The new regulation aims to shut down these bypass routes permanently.
The “gap” in enforcement had persisted for about a year. Reuters reported that this vulnerability emerged after the Commerce Department initially opted not to implement certain AI regulations announced during the final days of the Biden administration in May last year.
While the exact volume of chips funneled through this loophole remains unconfirmed, industry insiders suggest it could involve hundreds of thousands of units. Chris McGuire, a former State Department official, described the situation on social media as a “massive problem,” suggesting that Chinese subsidiaries likely acquired Nvidia's Blackwell chips in bulk without proper authorization.
In December last year, President Donald Trump authorized the export of certain Nvidia chips to China. However, that approval only covered the H200 model--a generation behind the Blackwell architecture. Even then, China's domestic regulations have made it increasingly difficult for local firms to purchase H200 chips.
