US wants tighter restrictions on AI chip sales to China: Why Beijing could face the brunt of the Jensen Huang scandal

US lawmakers from both parties are reportedly pushing for tighter restrictions on China's access to advanced artificial intelligence chips, with the controversy surrounding former Nvidia chief executive Jensen Huang giving fresh ammunition to China hawks in Washington and threatening to disrupt Chinese companies' access to critical computing power.

The push comes days after Huang stepped down following reports of an affair with Alice Huang, an executive at Singapore-based Megaspeed International whom US authorities suspect of spying for Beijing. The controversy has intensified scrutiny of Nvidia's role in China's access to advanced American chips and whether the company did enough to prevent their diversion.

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According to a report in Reuters, House Speaker Mike Johnson said on Thursday that a growing consensus in Congress favoured new restrictions on chip exports to China. Lawmakers are considering attaching several proposals to the annual defence authorisation bill, which typically enjoys bipartisan support.

What restrictions are being considered?

Four proposals could significantly tighten China's access to American technology:

AI Overwatch Act: Proposed by Senator Elizabeth Warren and Republican Senator Jim Banks, it would give Congress greater oversight of changes to export-control rules, making it harder for future administrations to ease restrictions on Nvidia chip sales to China.

Chip Security Act: The legislation would require chipmakers to track advanced AI processors and notify the government if they suspect chips have reached prohibited users. This could close loopholes through which legally exported chips are subsequently diverted to China, while increasing compliance costs for Nvidia.

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Match Act: It would pressure US allies, including the Netherlands and Japan, to restrict sales and maintenance of advanced semiconductor manufacturing equipment destined for China. This could hamper Beijing's efforts to develop competing domestic chips.

Remote Access Security Act: The proposal would allow the Commerce Department to regulate Chinese companies renting computing power from overseas data centres equipped with Nvidia chips. It could directly affect Chinese firms relying on third-country facilities to circumvent export restrictions.

Why this is bad news for China

The timing could hardly be worse for China's AI industry. Although Beijing has accelerated efforts to develop domestic alternatives through companies such as Huawei, it remains dependent on Nvidia's advanced processors to power cutting-edge AI models, as mentioned in a report in Bloomberg.

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Chinese companies have used overseas data centres and other workarounds to access restricted computing capacity. Reports suggest Alice Huang's relationship with Jensen Huang helped facilitate Chinese companies' access to at least $7.5 billion worth of Nvidia chips. Megaspeed alone has been identified as a major buyer in Southeast Asia.

Closing these channels could cause immediate disruption. Huawei has acknowledged that it cannot meet domestic demand, while Chinese AI companies are still struggling to establish profitable businesses despite rapid technological advances.

The fallout could also extend beyond hardware. Jensen Huang was a prominent advocate of open-weight AI models and defended techniques such as model distillation, an approach central to China's AI ambitions. His departure removes an influential Silicon Valley voice that had supported these approaches.

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With Chinese AI stocks already falling amid the controversy, tighter restrictions could deepen the industry's technological and commercial difficulties. Beijing's long-term push for self-reliance may gain urgency, but replacing Nvidia's computing capacity cannot happen overnight.

(With agency inputs)