Federal regulators moved Sunday to shut down a regulatory gap that potentially allowed Chinese companies to obtain America’s most advanced artificial intelligence processors through their international subsidiaries.
The Commerce Department published new guidance on its website targeting a loophole that may have permitted Chinese entities to acquire cutting-edge semiconductors, including Nvidia’s latest Rubin and Blackwell processors and AMD’s MI350x chips, by operating through locations such as Malaysia.
This regulatory oversight suggests that America’s top-tier AI semiconductors could have been reaching Chinese artificial intelligence companies for nearly twelve months, despite ongoing federal efforts to restrict Chinese access to critical semiconductor technology.
The scope of chip exports during this period remains unknown, though one industry insider with extensive supply chain expertise estimated the number could reach hundreds of thousands of units.
In the weekend announcement, federal regulators declared they would apply licensing requirements to advanced semiconductors destined for China-based entities, regardless of where those companies maintain physical operations.
Neither the Commerce Department, Nvidia, nor AMD provided immediate responses to requests for comment.
The regulatory opening emerged when the Commerce Department announced in May 2025 that it would suspend enforcement of the AI Diffusion rule, which had been implemented during the final period of the Biden administration to control worldwide AI chip access.
Technology expert and former State Department official Chris McGuire described the situation in a social media post Sunday, stating: “This is a HUGE problem.” He explained that the gap enabled overseas branches of Chinese corporations to purchase Nvidia Blackwell processors without proper licensing.
“Chinese companies have been buying these chips, very likely at scale,” McGuire stated.
The updated guidance includes an unusual provision that does not mandate data centers to discontinue using the processors or halt maintenance services for advanced computing equipment like servers.
