The short-lived “ceasefire” in the tech confrontation between the U.S. and China since the trade talks is very likely to be broken by a new rule the U.S. Commerce Department just issued.
Lawyers will be racing to unpack the technical details of the interim rule named “Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities”, published by the U.S. Department of Commerce today. In plain terms, the Commerce Department’s BIS has massively expanded who counts as controlled under the Entity List and the Military End User (MEU) list entries: before, if company A was on a list, people just avoided doing business with A; now, if A—or any listed company—alone or together owns 50% or more of another company, that “other” company will be treated as if it were on the list and face the same restrictions.
For example: A is listed and owns 35% of C; another listed company B owns 15% of C — together that’s 50%. Under the new rule, C would be treated as a controlled entity in transactions and subject to the strictest license-review policy that applies to A or B.
The rule takes effect as soon as it’s published and public comment comes later (published Sept. 29, effective Sept. 30). BIS has used IFRs before — for example, the 2022 export control on advanced chips to China, the chip foundry restrictions this January, and the 2019 action that put Huawei plus dozens of non-U.S. affiliates on the Entity List.
Once the 50% rule lands in practice, compliance and due diligence demands will jump. Many companies used to rely on simple name-matching against lists; now exporters, re-exporters and transferors must check whether a counterparty’s owners include listed entities and exactly how much they own. If you can’t determine ownership, that’s a red flag: you must either apply for a license or stop the transaction, unless a specific license exception clearly applies.
Problem is, ownership info in some jurisdictions is opaque and costly to verify — so companies will need to beef up internal due diligence or buy “50% ownership analysis” from specialist vendors. It’s not just exporters — freight forwarders, banks and other intermediaries can be implicated too; BIS has issued guidance reminding these parties to watch for red flags in supply-chain activity.
The expansion to 50% will be huge in scope.
First off, it hits companies whose parent is listed but whose subsidiaries were previously not named. Firms that relied on the “parent is listed, overseas subsidiary is not” workaround to keep buying controlled items from the U.S. will find that “not named = safe” no longer holds: many subsidiaries and affiliates that never appeared on any list could be swept into the controlled universe overnight. Chinese firms that set up overseas subsidiaries or acquired foreign companies to get technology or market access will find that playbook far riskier: suppliers, partners and financial channels could be cut off, and expansion or M&A plans will need rethinking.
The rule also affects U.S. and other Western companies — mainly through higher compliance costs and supply-chain disruption.
Historically, U.S. exporters’ compliance mainly meant name-matching against government lists; now name matches aren’t enough. Firms must map the equity structures of customers, suppliers and partners to see whether listed shareholders are involved via piercing/ownership. Businesses in semiconductors, AI, aerospace and other dual-use sectors will likely need a full compliance upgrade: draw share-ownership maps, trace control chains and ultimate beneficiaries, and even trace through multiple corporate layers. Internal processes, training and decision flows will need revising or they risk unknowingly triggering new license obligations. Given the severe civil and criminal penalties for export-control breaches, the pressure on U.S. firms will be intense.
Risk firm Kharon estimates the 50% rule could expand the universe of entities affected from roughly 3,400 today to tens of thousands. Previously the lists mainly targeted on-shore Chinese firms and a handful of overseas affiliates; now subsidiaries controlled by listed companies could be spread across nearly a hundred jurisdictions and suddenly become controlled. Many exporters and banks never treated these firms as risk entities — they’ll likely be blindsided and have to undertake big compliance remediation projects.
Supply chains will be forced to reshuffle. Once the test moves from “does the name appear?” to “who controls whom?”, compliance turns from point-checks into a systemwide task spanning equity, contracts, logistics and finance. Two immediate outcomes: hidden risks get exposed — suppliers, contractors or JV vehicles once thought safe can suddenly be controlled; and chain reactions happen — worried suppliers may stop shipping, and some joint ventures may renegotiate equity or even unwind. This fear spreads through upstream manufacturers, parts suppliers, logistics, warehousing, payments and insurance.
The timing of the rule is extremely sensitive. Since the London talks, U.S.–China trade negotiations have been active, covering tariffs and also tech-restriction issues (the U.S. pressing China to relax rare-earth export controls while China wants the U.S. to roll back tech restrictions). During these talks, the U.S. had reportedly held back on new tech restrictions — some outlets even said the White House told Commerce not to roll out new measures so as not to upset talks.
After the Madrid talks, both sides claimed some progress. The U.S. Treasury Secretary Scott Bessent seems to have said the U.S. wouldn’t lift past tech restrictions but promised not to impose new ones — “the promise of things that won’t happen.” So how will Bessent square that pledge with this 50% rule? Is this another case of different U.S. agencies acting at cross-purposes, or is something else going on? It’s puzzling.
The situation recalls what happened after the Geneva talks, as described by the media but never verified: just when a framework seemed to be holding, Commerce unexpectedly issued guidance targeting Huawei’s Ascend chips and other domestically produced advanced computing chips, triggering a cascade of escalations.
Clearly, the Chinese government was furious. About an hour after the rule was issued, the MOFCOM spokesperson released a strongly worded and emphatic statement condemning it.
Reporter:
On September 29, 2025 (Eastern Time), the U.S. Department of Commerce issued an export-control piercing rule that extends the same export restrictions and sanctions to subsidiaries more than 50% owned by entities listed on the U.S. “Entity List,” etc. What is China’s comment on this?
Answer:
China has taken note of the matter. This rule is yet another typical example of the U.S. over-broadly invoking national security and abusing export controls. The move is extremely egregious in nature, gravely harms the legitimate rights and interests of the affected enterprises, severely disrupts the international economic and trade order, and seriously undermines the security and stability of global industrial and supply chains. China firmly opposes it.
China urges the U.S. to immediately correct this wrongful practice and stop the unreasonable suppression of Chinese companies. China will take necessary measures to resolutely safeguard the legitimate rights and interests of its enterprises.
How this will play out is uncertain and deserves close watching.