A Blacklisted Chinese Chip Firm Can Dodge U.S. Sanctions by Spinning Off a Subsidiary. One Frozen Rule Ends That in 48 Days.
America's export blacklist has always restricted companies by name only — so a listed Chinese chipmaker could spin off an unnamed subsidiary and keep trading almost freely. The rule built to close that loophole has been frozen for exactly a year, as a trade-truce concession. It thaws November 9.
The 50% cascade: toggle the rule, watch who goes dark
Illustrative ownership structure, not real companies. Two entities ("Parent A," "Parent B") are already on the Entity List. Toggle the frozen Affiliates Rule on to see restrictions spread automatically down the ownership chain — including to a second-tier subsidiary its parent doesn't even directly own.
The plain version
Imagine the U.S. keeps a blacklist of Chinese companies it won't let American suppliers sell certain sensitive technology to — currently a few thousand names, mostly chipmakers, chip-tool makers and their military-linked partners. For as long as that blacklist has existed, it has worked by name only: if a company isn't literally on the list, it can trade with U.S. suppliers, even if it's owned or controlled by a company that is.
Last September, regulators tried to close that loophole with something nicknamed the "Affiliates Rule," or the "50% Rule." Under it, if a blacklisted company owns half or more of another company — directly, through a chain of subsidiaries, or even by adding together several partial stakes from more than one blacklisted owner — that company automatically inherits the same restrictions. No new paperwork. No new listing. It just happens, all the way down an ownership chain: if a blacklisted firm owns 50%-plus of Company B, and Company B separately owns 50%-plus of Company C, then C is fully restricted too, even though the blacklisted firm's actual financial stake in C, multiplied through, might only be 25%.
Two months after adopting it, as part of a broader trade truce with China — the same deal that also paused China's rare-earth export curbs — Washington froze the rule for exactly one year. For the past year, companies have been trading with Chinese partners under the old, name-only system.
That freeze thaws November 9 — 48 days from today. Nobody knows for certain what comes next: an extension, a narrower version targeting specific sectors, or a full snapback overnight. If it's the last option, an unknown number of previously untouchable Chinese subsidiaries across the tech supply chain could become off-limits at once, with no public list telling companies in advance exactly who's affected.
The expert version
BIS's Entity List, Military End-User (MEU) List and §744.8 restrictions have historically applied strictly to the entity named — a textbook name-based control regime with a well-documented evasion path: a listed company forms an unlisted subsidiary or joint venture, and absent a separate multi-month BIS listing action naming that new entity, U.S.-origin items can flow to it without restriction.
On September 29, 2025, BIS issued an interim final rule creating the Affiliates Rule: any entity owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more Entity List, MEU List or §744.8-restricted parties is automatically subject to that party's restrictions, with no separate listing action required. Ownership stakes from multiple listed parents sum together — a 30% stake plus a 25% stake from two different listed owners captures the target at 55%. Multi-tier chains are evaluated at each link independently rather than diluted mathematically across tiers: if listed Company A owns 50%-plus of B, and B separately owns 50%-plus of C, then C is captured in full, even though A's actual indirect beneficial stake in C, multiplied through the chain, works out to only 25%. The rule also imposes an affirmative due-diligence duty on exporters to identify and resolve "red flag" ownership structures.
Six weeks later, as part of the broader U.S.-China trade framework reached at the late-October 2025 Trump-Xi summit — the same agreement under which China suspended the global implementation of its October 9, 2025 expansion of rare-earth export controls, though the narrower April 2025 heavy-rare-earth curbs remain fully in force — BIS suspended the Affiliates Rule for one year, effective November 10, 2025 through November 9, 2026, reverting enforcement to name-only Entity List status for that window.
That suspension lapses in 48 days. Per the current Federal Register text, reimposition is effective November 10, 2026 and extends indefinitely absent further action. Trade counsel broadly describe three plausible outcomes at that deadline — extension, narrowed or sector-specific reinstatement, or full snapback — with no public consensus yet on which is most likely, and no comprehensive public registry of which unlisted affiliates would qualify under the 50% test.
Why it matters for tech + supply chain: a full reimposition could widen America's effective China chip blacklist from roughly a few thousand named entities to an unknown multiple of unnamed subsidiaries and joint ventures — with 48 days to find out which ones.
Why it matters for tech + supply chain: for chip-tool, materials and EDA suppliers, ownership-chain due diligence — not the published Entity List itself — is about to become the binding constraint on who they can legally sell to, on a 48-day runway with no finalized outcome yet.