All that was needed was a subsidiary in Malaysia

The US Government has suspected for several years that Chinese companies and research centers dedicated to artificial intelligence (IA) acquire Nvidia’s most advanced GPUs through Singapore and Malaysia intermediary companies. In 2022 it decided to ban the sale to China of the most powerful AI GPUs designed by Nvidia, AMD and other American companies in an attempt to stop the use of this technology by the Chinese military.

Since then, the US and Chinese Administrations have maintained a constant pulse that not only affects the integrated circuit industry; It permeates everything to the extent that AI chips support a critical technology for both nations. Be that as it may, the biggest obstacle that the US faces in this scenario is parallel import routes. The Commerce Department is trying to make it harder for cutting-edge American chips to reach China, but surprisingly, the Trump Administration hasn’t made it easy.

In May 2025 the Government led by Donald Trump decided to freeze the AI ​​Diffusion rulean AI GPU export control regulation that the Biden Administration approved in its final days in office, in January 2025. This regulation established a three-tier system for global access to advanced AI chips. In this way, US allies could obtain them without limitations, but China, Russia or Iran had access completely blocked.

Malaysia: the biggest legal loophole in the chip war between the US and China

AI chip designers led by Nvidia reacted strongly against the AI Diffusion rule. Their argument maintained that this regulation was essentially bureaucratic and penalized sales to allied or neutral countries. Donald Trump’s government responded. In May 2025 it announced that it would develop its own regulations, and that it would be “bolder and more inclusive”, so it left the AI Diffusion rule not applied.

Here comes the unexpected turn of events. By suspending its application, the Trump Administration unintentionally created a legal loophole that has been taken advantage of by many Chinese companies. The AI Diffusion rule required the granting of a license by the US Department of Commerce to be able to sell chips to foreign subsidiaries of Chinese companies. Since this regulation did not prosper, according to SCMPDuring the last year, many Chinese companies have freely purchased Nvidia’s Blackwell and Rubin GPUs, and AMD’s MI350x, from their subsidiaries in Malaysia.

Just 48 hours ago the Office of Industry and Security of the US Department of Commerce public a guideline that seeks to close that legal loophole. What it does is simply require compliance with licensing requirements for advanced chips destined for entities based in China, even when those entities are physically located outside the country. However, this new guideline does not require data centers to stop using chips already purchased, so according to Chris McGuirea technology expert and former State Department official, “closes one loophole, but leaves another open.”

McGuire does not specify what that second loophole is, but experts point out to the path that remains open through TSMC: Chinese subsidiaries can also access the manufacturing capacity of the Taiwanese semiconductor giant without the new guideline explicitly regulating it.

Image | Nvidia

More information | SCMP

In Xataka | We can forget about AI without hallucinations for now. Nvidia CEO explains why