U.S. Deputy Commerce Secretary: Producing Chips for Chinese Shell Companies Violates Rules

(CNA reporter Liao Han-yuan, Washington, April 14) U.S. Deputy Commerce Secretary Jeffrey Kessler stated today at a House of Representatives hearing that high-tech companies producing chips for Chinese shell companies violate regulations, and the U.S. can conduct investigations, with no loopholes in the rules. He emphasized that protecting U.S. technology is a top priority.

Kessler, who oversees the Department of Commerce's Bureau of Industry and Security (BIS), testified today at a House Foreign Affairs Committee hearing titled 'FY2027 BIS Budget: AI Arms Race and the Office of Industry and Security.' Lawmakers expressed strong concern over U.S. restrictions on chip exports to China and the compliance of tech firms.

Kessler noted that BIS has collected significantly higher fines over the past year and a half, with staff overwhelmed and workloads exceeding capacity. Enforcement agencies face similar challenges, and he stressed the need to substantially increase enforcement personnel to protect critical U.S. technologies.

Young Kim, Chair of the Foreign Affairs Committee's Indo-Pacific Subcommittee, questioned that Chinese firms cannot purchase advanced U.S. chips. However, Tech Insights reported that in 2024, Huawei acquired approximately 3 million AI chips manufactured by TSMC through shell companies. After the incident was revealed, BIS reinforced rules for chipmakers to prevent similar incidents, such as producing chips for Huawei.

She pointed out that Chinese firms are abusing loopholes through overseas subsidiaries in Southeast Asia, such as Malaysia and Singapore. The issue is whether chipmakers require approval to produce AI chips for entities not on the restricted list but also not explicitly authorized.

Kessler stated that under current regulations, providing advanced AI chips to shell companies of entities in countries subject to export control regulations clearly violates the rules, and the U.S. can investigate. He emphasized that the rules are clear and have no loopholes.

He reiterated that preventing China from acquiring U.S. technology through back channels is a top priority for BIS.

Democratic ranking member Gregory Meeks criticized that BIS has not added Chinese firms to the export denial list since October last year, an unprecedented situation in over a decade. He asked whether NVIDIA's H200 chips have already been exported to China or Hong Kong.

Kessler confirmed that, to his knowledge, 'yes,' but in very small quantities. BIS recently provided non-public information to the committee. He confirmed sales were approved, but the details were provided to the committee and are not publicly disclosed.

He reiterated that only a very small, negligible amount of H200 chips and shipments have been exported. (Editor: Hung Chi-yuan) 1150715