U.S. Department of Commerce Moves to Block Circumvention Exports of NVIDIA AI Chips to China

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[Financial News] The U.S. government has moved swiftly to close a loophole that allowed Chinese companies to import cutting-edge artificial intelligence chips from NVIDIA, AMD, and others through overseas affiliates.
On the 31st of last month local time, the United States Department of Commerce abruptly announced new regulatory guidance on its official website. Under the new rule, companies with headquarters in China must obtain prior government approval, or a license, to export advanced AI semiconductors even if the relevant affiliate is located outside Chinese territory.
The emergency measure follows allegations that large volumes of key U.S. AI chips flowed into Chinese-affiliated entities in third countries such as Malaysia over the past year.
The Commerce Department's guidance effectively acknowledges that, amid broad U.S. pressure to curb China's AI capabilities, critical cutting-edge chips have been slipping into Chinese hands through a legal loophole over the past year.
The loophole emerged in May last year, when the Trump administration suddenly suspended enforcement of the Biden administration's AI Diffusion Rule. Once enforcement of the rule, which controlled global access to AI chips, was halted, Chinese AI companies began buying advanced semiconductors subject to U.S. controls through subsidiaries they had set up overseas, including in Malaysia, without restrictions.
The semiconductors reportedly routed through the circumvention channels include NVIDIA's latest Blackwell and next-generation Rubin processors, as well as AMD's advanced AI accelerator, the MI350X. A semiconductor industry source familiar with supply chain conditions estimated that the number of advanced chips diverted through the loophole over the past year could reach hundreds of thousands.
Chris McGuire, a former U.S. Department of State official and technology policy expert, wrote on social media that "this is an enormously big problem" and noted that "it is highly likely that Chinese companies have been using regulatory loopholes to buy NVIDIA's latest Blackwell chips in large quantities without licenses."
However, some say the Commerce Department's new measure has a critical limitation. The new guidance only requires licenses for chips to be exported in the future. It does not include any mandatory provisions to halt chip use at data centers already built and operating by Chinese-affiliated companies in third countries, or to block maintenance and service supplies for servers and other advanced computing equipment. In other words, it does not stop Chinese-affiliated firms from running AI infrastructure based on chips that have already leaked out.
Meanwhile, neither the U.S. Department of Commerce nor NVIDIA or AMD immediately issued an official response to the surprise move. Market watchers expect the tighter rules to weigh on the short-term overseas sales of U.S. chipmakers such as NVIDIA.
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jjyoon@fnnews.com Yoon Jae-jun Reporter