US Closes Nvidia Chip Loophole for Chinese Firms
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- BIS issued guidance on May 31 clarifying that export licenses are required for advanced computing chips going to any entity whose ultimate parent is headquartered in China or Macau, regardless of where that entity is registered — a rule the bureau says has technically been in force since November 2023.
- The loophole opened after the Trump administration shelved the Biden-era AI Diffusion Rule in May 2025, and industry estimates cited by Reuters suggest hundreds of thousands of banned Nvidia chips may have already reached Chinese-owned subsidiaries through Singapore and Malaysia.
- BIS carved out existing data center operations from the new enforcement, declining to require facilities already running banned chips to cease using them — a decision that sidesteps potential liability and compensation claims against chip suppliers.
- Chinese commentators writing under pseudonyms "Little Chunping" and "Ling Gen" argued that enforcement will be hampered by complex multi-jurisdictional corporate structures, and predicted firms will turn to intermediaries, cloud computing bundles, and technology licensing as workarounds.
- Former State Department official Chris McGuire warned the guidance does not address BIS's non-enforcement of TSMC due-diligence rules, saying Chinese companies may still be able to have AI chips manufactured at TSMC via third-country cutouts without a license — what he called a "massive loophole that still needs to be closed."
- Last October, the New York Times reported that Singapore-based Megaspeed, spun off from a Chinese gaming firm, purchased nearly $2 billion in advanced Nvidia chips through its Malaysian subsidiary; Bridge Data Centers removed Megaspeed from its Malaysian hub in April after US and Singaporean probes.
Why it matters: The closure ends a one-year grey channel through which Chinese-owned entities legally acquired banned Nvidia chips, but BIS's framing as a "clarification" rather than a new rule lets the Trump administration avoid acknowledging it created the gap in the first place. The guidance leaves chips already deployed untouched, imposes no transition period for orders in transit, and does not address parallel enforcement gaps at TSMC — meaning Chinese access through third-country manufacturing cutouts remains unresolved.
