BY COMFORT OGBONNA
The U.S. Department of Commerce has issued new guidance aimed at preventing advanced artificial intelligence chips from reaching Chinese companies through overseas subsidiaries, marking the latest step in Washington’s effort to restrict Beijing’s access to cutting-edge semiconductor technology.
The guidance, released by the Commerce Department’s Bureau of Industry and Security (BIS) on Sunday, seeks to close what officials described as a potential loophole in existing export control regulations. The move comes amid growing concerns that some of the world’s most advanced AI processors, including Nvidia’s highly sought-after Blackwell chips, may have been purchased by subsidiaries of Chinese companies operating outside mainland China.
The development highlights the increasing complexity of enforcing U.S. technology restrictions as Chinese firms expand their global presence and establish operations in countries across Asia and other regions. Analysts and policymakers have warned that overseas subsidiaries could potentially provide an indirect route for Chinese companies to obtain advanced chips that are otherwise restricted under U.S. export rules.
According to people familiar with the matter, the new guidance was published shortly after a policy paper circulated among officials in Washington raising concerns about the issue. The document argued that a significant gap had emerged in the export control framework, potentially allowing advanced AI chips to flow to overseas branches of Chinese companies without the same level of scrutiny applied to entities located inside China.
While the scale of such exports remains unclear, industry sources suggest the volume may have been substantial. One semiconductor supply-chain expert estimated that hundreds of thousands of advanced chips could have been exported under the existing framework during the past year, although no official figures have been released.
Under the updated guidance, BIS clarified that advanced semiconductor exports to entities headquartered in China remain subject to licensing requirements even when those entities operate outside Chinese territory. The clarification effectively extends the reach of existing export controls and signals that regulators intend to scrutinize transactions involving overseas subsidiaries of Chinese firms more closely.
A BIS spokesperson said the agency was simply clarifying export license requirements that have been in place since 2023 and emphasized that the United States remains committed to protecting critical technologies from unauthorized transfers.
“BIS issued guidance clarifying export license requirements that have been in place since 2023,” the spokesperson said. “BIS will continue to enforce export controls rigorously to safeguard critical American technology.”
The guidance is particularly significant because advanced AI chips have become a central focus of the technological competition between the United States and China. High-performance processors are essential for training sophisticated artificial intelligence models, powering advanced computing systems, and supporting military, industrial, and scientific applications.
Nvidia’s Blackwell processors are among the most powerful AI chips currently available and have become a key target of U.S. export restrictions designed to limit China’s ability to develop advanced AI capabilities. Demand for such chips has surged globally as companies race to build increasingly powerful artificial intelligence systems.
Despite the new guidance, Nvidia indicated that the clarification does not alter its current compliance obligations. A company official said Nvidia had already been operating under clear licensing requirements imposed by the Commerce Department and therefore could not ship restricted chips without authorization.
Advanced Micro Devices (AMD), another major supplier of AI accelerators, did not immediately comment on the updated rules.
The controversy stems in part from policy changes made in May 2025, when the Trump administration announced it would not enforce the AI Diffusion Rule introduced during the final days of the previous administration. That rule established a broad framework governing the global distribution of advanced AI chips and imposed licensing requirements on numerous countries and entities.
Critics argued that suspending enforcement of the rule unintentionally created opportunities for Chinese firms to obtain restricted technology through international subsidiaries. Technology and national security experts have increasingly warned that gaps in export control regulations could undermine broader U.S. efforts to maintain a technological advantage in artificial intelligence.
Former State Department official Chris McGuire, who specializes in technology and national security issues, described the situation as a major concern. He argued that overseas subsidiaries of Chinese companies had been able to purchase advanced AI chips without obtaining the licenses that would normally be required for entities operating inside China.
According to McGuire, the new BIS guidance addresses that particular issue by making clear that export controls apply based on corporate ownership and headquarters location, not simply the physical location of a subsidiary.
However, he noted that other vulnerabilities remain within the broader export control system. One of those concerns involves semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC), which produce many of the world’s most advanced chips. McGuire argued that previous requirements for foundries to conduct enhanced due diligence on customers and potential front companies have not been fully restored.
A spokesperson for TSMC declined to comment on the matter.
The latest guidance also stops short of imposing restrictions on data centers or organizations that already possess advanced AI chips. Companies that have legally acquired such hardware are not being required to halt operations, discontinue services, or remove existing systems from use.
Industry observers say the move reflects a balancing act by U.S. regulators. While Washington is seeking to prevent advanced technologies from reaching strategic competitors, policymakers also want to avoid disrupting global technology supply chains or creating uncertainty for companies that have already invested heavily in AI infrastructure.
The announcement underscores the growing importance of semiconductor export controls in the broader geopolitical competition between the United States and China. As artificial intelligence becomes increasingly central to economic growth, military capabilities, and technological leadership, access to advanced chips has emerged as one of the most critical issues shaping relations between the world’s two largest economies.
With regulators now moving to close perceived gaps in the system, companies involved in the semiconductor supply chain are expected to face increased scrutiny as U.S. authorities continue efforts to ensure that advanced AI technologies do not reach restricted Chinese entities through indirect channels.
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