The US Commerce Department’s Bureau of Industry and Security (BIS) issued guidance on May 31 that effectively closes a loophole allowing Chinese technology companies to acquire banned high-end Nvidia graphics processing units (GPUs) through subsidiaries in Singapore and Malaysia. The guidance clarifies that export licenses are required for advanced computing chips destined for any entity whose ultimate parent company is headquartered in China or Macau, regardless of where that entity is located. BIS stressed that this rule has technically been in force since November 2023.
The loophole emerged after the Trump administration announced in May 2025 that the AI Diffusion Rule—a Biden-era framework imposing tiered global restrictions on advanced AI chip exports—would not take effect. Chinese firms quickly seized the opportunity, building data center racks in Singapore and Malaysia and purchasing Nvidia chips in large quantities. Industry estimates cited by Reuters suggest hundreds of thousands of banned Nvidia chips may have already reached Chinese-owned subsidiaries through this channel.
Enforcement shift and political framing
BIS framed the move as a clarification rather than a new rule, avoiding acknowledgment that a loophole ever existed. Instead, the agency casts the problem as one of compliance and enforcement. The guidance also includes a carve-out: data centers already operating with banned chips will not be required to cease using them, sidestepping potential liability and compensation claims against chip suppliers.
Regardless of Washington’s framing, the practical effect is clear. Chinese-owned entities operating overseas will no longer be able to freely purchase Nvidia chips that are banned, ending an arrangement that had gone largely unchallenged for a full year. The enforcement shift comes as Beijing has been pressing domestic technology firms to prioritize homegrown AI chips, such as Huawei Technologies’ Ascend 920, over foreign alternatives like Nvidia’s H200 and H20 chips.
Impact on Chinese data centers in Southeast Asia
Chinese commentators say the tightened enforcement will significantly affect Chinese firms’ data center operations in Southeast Asia in the short run, but they expect alternative pathways to emerge. A Liaoning-based columnist using the pen name “Little Chunping” noted that Chinese firms’ overseas subsidiaries had previously exploited the ambiguity in the rules, procuring Nvidia’s Blackwell-architecture chips in full compliance without export licenses. “The new guidance will tighten the regulatory grip and raise compliance costs and legal risks for these companies,” he said. However, he added that enforcement remains challenging: “Proving that an overseas chip buyer is ultimately Chinese-owned is far harder than it sounds. Corporate structures can span multiple jurisdictions, and foreign governments are under no obligation to help Washington trace them.”
Possible countermeasures include deploying more intermediaries and financial instruments to obscure transaction chains, shifting toward technology licensing or purchasing cloud computing services that bundle access to advanced chips, and establishing more substantive research and production partnerships in less regulated jurisdictions. A Tianjin-based writer using the pseudonym “Ling Gen” observed: “Do not be fooled by the word ‘clarification.’ In export control language, a clarification often hits harder than a new rule.” He described the move as a slow squeeze with two immediate consequences: existing chips in data center racks are untouched, but every future purchase order becomes a license application stuck in permanent review; and projects already mid-stream face immediate uncertainty, with no transition period offered, leaving contracts in legal limbo.
The guidance covers future exports but says nothing about chips already at sea or orders signed but not yet shipped. Suppliers have already begun to hit the brakes, and affected data centers may pivot to Nvidia’s H200 chips, which remain outside the scope of current restrictions. This development is part of a broader US-China technology competition, as explored in our analysis of the US-China AI race and the ongoing challenges of enforcing export controls, including recent cases like the Taiwan bust of a smuggling ring using a Japan route to ship Nvidia AI chips to China.
