Even Limited Sales of High-End Chips to Chinese Buyers Pose a Serious Risk

China has a new opportunity to use American chips to achieve its artificial intelligence (AI) ambitions.

On July 14, Jeffrey Kessler, the head of the Commerce Department’s Bureau of Industry and Security (BIS), publicly confirmed during a congressional hearing that Chinese firms had purchased a select but undisclosed number of H200s, a high-end American AI chip produced by Nvidia. In discussing the deal, Kessler maintained the possibility of authorizing further sales while downplaying national security concerns. He claimed that there were “very few shipments” as measured against the number of export licenses authorized by BIS.

However, even if limited, the sales will benefit both Beijing’s AI sector and the Chinese military by closing a key gap between the quality of domestic and American chips currently available to Chinese firms.

BIS Claims Sales Were Limited, Met Internal Safeguards

In his testimony, Kessler acknowledged that “a small quantity of chips” had been sold to China and Hong Kong. He noted, however, that BIS had subjected buyers to an unspecified national-security screening mechanism and refused to authorize some purchase orders.

Kessler also stated that Chinese buyers were forced to submit to inspections as a condition of purchasing the H200s, though he did not say whether such inspections had already occurred. Notably, however, Kessler did not rule out BIS authorizing further sales, leaving open the possibility for Chinese firms to expand their orders in future discussions with the agency.

BIS authorized the sale of H200s to Chinese firms in December 2025 following an agreement between the Trump administration and Nvidia that offered the U.S. government a 25-percent share of its sales revenue in exchange for easing export restrictions. While not as advanced as Nvidia’s top-line chips, the H200 is far more advanced than any competing Chinese component and six times more powerful than other American chips allowed for sale to the Chinese market.

Beijing Seeks To Reduce Strain on Domestic AI Firms

While China continues to push its domestic AI sector to prioritize domestic self-sufficiency, Beijing has reportedly allowed even some national champions to openly purchase H200 chips to provide more computing power. These firms include Alibaba, which the Pentagon identified as a Chinese military company in June, along with DeepSeek and ByteDance, both of which maintain extensive ties to Beijing.

These legal sales supplement China’s ongoing AI smuggling operations, which have previously targeted H200s as key inputs for deploying large-scale frontier AI models. In December 2025, the Department of Justice arrested two men as part of an investigation into a Houston-based smuggling ring allegedly dispatching H200s, along with other high-end American chips, to Chinese firms in violation of export control law.

These factors raise the immediate national security impact of H200 sales to China. Even if each sale equates to small shipments, each chip may be used directly by the Chinese military to close the computing gap with U.S. models. Rather than furthering dependence on U.S. components, these chips are a reversible measure taken by Beijing to reduce the existing strain on leading Chinese firms tied to its defense industrial base. By easing that stress, China is buying time for a fuller transition to a domestically produced chip architecture.

Commerce Must Clarify Export Control Policies

The Commerce Department’s handling of the H200 sales issue is part of a pattern of uncertainty on export control policy.

In May, the department belatedly acknowledged that its abrupt suspension of the AI Diffusion Rule proposed by the Biden administration allowed Chinese firms to purchase high-end AI components without a license for over a year. The department has also reportedly refused to blacklist dozens of Chinese technology firms, raising further risks of Chinese access to critical U.S. technologies.

Beyond demanding greater oversight over the flow of high-end chips to China, Congress should move to strengthen controls over foreign AI-related sales, particularly for critical semiconductor manufacturing equipment produced by Japan and the Netherlands using American technologies not currently possessed by Chinese firms.

Jack Burnham is a senior research analyst in the China Program at the Foundation for Defense of Democracies (FDD). For more analysis from Jack and FDD, please subscribe HERE. Follow FDD on X @FDD. Follow Jack on X @JackBurnham802. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.