#What has changed in US export controls on chips?
The recent shift in US chip export regulations presents significant implications for Chinese companies. This comes after a year-long workaround where these companies bypassed restrictions by purchasing chips through subsidiaries in Malaysia or Singapore. The US Commerce Department has implemented new guidance that directly targets this loophole.
As of May 31, the Bureau of Industry and Security has mandated that advanced AI processors, including well-known chip models from Nvidia and AMD, now require export licenses when sold to any entity headquartered in China. This enforcement emphasizes that the location of delivery is irrelevant; a Chinese company's subsidiary located abroad still falls under the same regulations.
#How was the loophole exploited?
Until now, the original export control framework, established in May 2025, lacked clarity, allowing Chinese firms to acquire restricted chips without triggering license requirements. By routing purchases through foreign subsidiaries, these companies gained access to advanced chips, resulting in estimates of hundreds of thousands of these items being sold to Chinese entities through these channels.
#What does the updated guidance entail for companies?
The critical change in the guidance shifts the focus from geographic considerations to that of ownership. Companies based in China now have their global subsidiaries categorized as Chinese entities. This means that regardless of where the chips are delivered, proper export licenses are essential for high-end AI processors, including those manufactured by Nvidia and AMD.
The new compliance requirements demand that exporters verify not only the destination country but also the parent company of the ordering entity. This necessitates more rigorous due diligence for companies like Nvidia and AMD as they navigate sales processes in Asia, ensuring compliance with these updated regulations.
#What does this mean for the semiconductor landscape?
The tightening of US export controls reflects a broader trend of technological decoupling between the US and China that has been accelerating since 2022. Initial restrictions aimed to hinder China's progress in artificial intelligence technology. Although the AI Diffusion rule aimed for global licensing compliance, the gaps in its enforcement previously allowed Chinese firms to procure essential chips through indirect means.
For companies such as Nvidia, the Chinese market has proven to be a significant revenue source. As regulatory pressures mount, these companies have already introduced China-specific chip designs, which feature reduced capabilities to align with licensing regulations. Similar challenges are present for AMD as they contend with restrictions affecting their MI350x chip, which positions itself against Nvidia's competitive offerings.