The U.S. Bureau of Industry and Security closed a loophole that let Chinese-owned subsidiaries outside China buy advanced AI chips. The change blocks a workaround that may have allowed hundreds of thousands of chips to slip through export controls.
Loophole allowed Chinese firms to buy chips via Malaysia
The loophole enabled Chinese firms to set up subsidiaries in countries like Malaysia and purchase Nvidia GB200 and AMD MI350x chips legally. The new guidance requires a license for exports to entities headquartered in Country Group D:5 or Macau, even if those entities are located elsewhere.
Former State Department official Chris McGuire called the loophole a "HUGE problem" on social media. The exact number of chips acquired through this blind spot is unknown, but one source told the South China Morning Post that it is probably in the range of hundreds of thousands.
Former official calls loophole a huge problem
The updated rules close a gap that regulators overlooked for over a year. The loophole allowed Chinese companies to bypass restrictions by operating through foreign subsidiaries, a method more convenient than smuggling hardware.
The announcement does not clarify whether the same loophole allowed Chinese firms to purchase advanced chips from TSMC. McGuire noted that the latest BIS guidance does not address enforcement of due diligence requirements on AI chip orders.
The closure of this loophole marks a step in tightening U.S. export controls on advanced AI hardware. It remains to be seen how Chinese firms will adapt to the new restrictions.
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