US Commerce closes Nvidia chip export loophole to China
In brief
- Commerce Department issued May 31 guidance requiring licenses for Nvidia Blackwell, Rubin, and AMD MI350x chips to Chinese-controlled entities
- Loophole allowed Chinese companies to bypass export controls for one year via Malaysia and Singapore subsidiaries
- New rules shift compliance focus from shipment location to ultimate corporate control, closing Southeast Asia workaround
The Loophole
For approximately one year, Chinese companies exploited a gap in US export controls by setting up subsidiaries in Malaysia or Singapore to purchase advanced chips and sidestep licensing requirements. The loophole originated from the Biden administration's "AI Diffusion Rule," which went into effect in May 2025 and focused on physical destination rather than ultimate corporate parent. Because the original rule asked "where is this chip being shipped?" rather than "who ultimately controls the company buying it?" Chinese firms could route purchases through Southeast Asian entities and avoid compliance triggers.
Estimates suggest that during this non-enforcement window, hundreds of thousands of advanced computing chips may have reached China-controlled companies abroad.
How the New Guidance Works
The Bureau of Industry and Security redefines the compliance trigger to focus on ultimate corporate control rather than physical shipment location. Instead of asking where a chip is being shipped, regulators now ask who ultimately controls the company buying it. This shift closes the Southeast Asia workaround and requires licenses for any advanced computing chip destined for a Chinese-headquartered entity, regardless of where the subsidiary is incorporated.
Nvidia confirmed that the new guidance does not alter its pre-existing licensing obligations. The guidance also doesn't affect chips already deployed in data centers. The Bureau of Industry and Security appears to be drawing a line going forward rather than pursuing retroactive enforcement.
Broader Strategic Context
This move fits neatly into a multi-year escalation of US semiconductor export controls targeting China, with significant tightening occurring since 2022. China has poured resources into domestic chip development, and companies like Huawei have made notable progress on homegrown alternatives. Closing the loophole could reduce the total addressable market for Nvidia and AMD in the near term by limiting chip sales to Chinese-controlled entities without licenses.
The tighter rules underscore the intensifying US-China tech rivalry and may accelerate China's push for self-reliance in chip technology.
