Under a potential rule at the U.S. Commerce Department’s Bureau of Industry and Security (BIS), subsidiaries owned 50% or more by export-restricted companies would automatically face the same controls. Diversion risks are fueling that push.
When BIS adds companies to the Entity List, some have followed by launching fresh subsidiaries that have no U.S. trade restrictions of their own. A 50% rule would close that loophole—but hand private industry a new challenge in ownership screening.
The Chinese tech companies below, from Kharon’s research, offer two case studies in quick-turn subsidiary launches and the tech-diversion risks they present.
1. Shanghai Biren Technology Co., Ltd.
The listing: BIS added Shanghai Biren Technology and more than half a dozen of its subsidiaries to the Entity List in October 2023 because of their involvement in the “development of advanced computing integrated circuits.” Placement on the Entity List subjects companies to a presumption of denial for U.S.-origin tech.
Shanghai Biren Technology’s designation formed part of an expanded U.S. export-control framework targeting Chinese firms that are developing artificial intelligence (AI) technologies that could advance China’s military modernization or surveillance programs.
Because the subsidiaries were formed after the publication of the BIS final rule, neither was subject to the Entity List designation that applied to Shanghai Biren Technology and its other named affiliates.
When BIS adds companies to the Entity List, some have followed by launching fresh subsidiaries that have no U.S. trade restrictions of their own. A 50% rule would close that loophole—but hand private industry a new challenge in ownership screening.
The Chinese tech companies below, from Kharon’s research, offer two case studies in quick-turn subsidiary launches and the tech-diversion risks they present.
1. Shanghai Biren Technology Co., Ltd.
The listing: BIS added Shanghai Biren Technology and more than half a dozen of its subsidiaries to the Entity List in October 2023 because of their involvement in the “development of advanced computing integrated circuits.” Placement on the Entity List subjects companies to a presumption of denial for U.S.-origin tech. Shanghai Biren Technology’s designation formed part of an expanded U.S. export-control framework targeting Chinese firms that are developing artificial intelligence (AI) technologies that could advance China’s military modernization or surveillance programs.
- The action also reflected Washington's broader strategy to curb China’s access to advanced AI-enabling semiconductor technologies that could support the country’s civil-military fusion agenda—blurring the line between civilian innovation and military advancement.
Because the subsidiaries were formed after the publication of the BIS final rule, neither was subject to the Entity List designation that applied to Shanghai Biren Technology and its other named affiliates.
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The risk: According to corporate records, subsidiary Shanghai Biren Semiconductor Technology is engaged in “integrated circuit chip design and services” and “technology import and export,” business activities that overlap with the U.S.-targeted sectors of its parent company. Fellow newcomer Shanghai Aoyan Technology says its business scope includes “integrated circuit chip design and services,” technical and software development, and a wide range of other services.
Meanwhile, Shanghai Biren Technology remains active, continuing to engage in partnerships with Chinese companies and universities focused on integrated circuit development, with an emphasis on AI applications. If the parent wanted to procure U.S. technology despite its export controls, its newest subsidiaries could be positioned to help.
A year and a half after BIS’s listing and their own formations, Shanghai Biren Semiconductor Technology and Shanghai Aoyan Technology face no U.S. restrictions. A 50% rule, however, could apply automatic export controls on both.
The subsidiary: Barely five weeks after the U.S. designated it, Zhipu AI established a new subsidiary, Zhejiang Zhipu Xinpian Technology Co., Ltd., that it wholly owns.
The two companies also share leaders in common.
Meanwhile, Shanghai Biren Technology remains active, continuing to engage in partnerships with Chinese companies and universities focused on integrated circuit development, with an emphasis on AI applications. If the parent wanted to procure U.S. technology despite its export controls, its newest subsidiaries could be positioned to help.
A year and a half after BIS’s listing and their own formations, Shanghai Biren Semiconductor Technology and Shanghai Aoyan Technology face no U.S. restrictions. A 50% rule, however, could apply automatic export controls on both.
2. Beijing Zhipu Huazhang Technology Co., Ltd.
The listing: Here’s a more recent case. Beijing Zhipu Huazhang Technology Co., Ltd. (known as Zhipu AI) is one of China’s top three large-language-model (LLM) vendors. OpenAI, the U.S.-based developer of ChatGPT, has singled out Zhipu AI as a rising challenger.- Government buyers already have been scooping up Zhipu AI’s GLM/ChatGLM family of Chinese-optimised foundation models, comprising text, vision and video. Open-tender data for 2024 shows that it won 12 public-sector AI contracts worth roughly RMB 2.2 billion ($307 million USD).
- In recent months, Zhipu has raised more than $700 million USD and begun China’s first LLM-startup IPO process. Bloomberg reported that a sale could raise about $300 million.
The subsidiary: Barely five weeks after the U.S. designated it, Zhipu AI established a new subsidiary, Zhejiang Zhipu Xinpian Technology Co., Ltd., that it wholly owns.
The two companies also share leaders in common.
Kharon users can explore this Insight in greater detail through the ClearView platform.
The risk: Corporate filings show that the new unit carries paid-in capital of RMB 450 million ($63 million USD) and, once again here, is involved in the same sector as its parent. Specifically, Zhejiang Zhipu Xinpian Technology is licensed to develop AI foundation and application software plus related data-processing services.
That overlap in scope, as well as the timing of the subsidiary’s launch, raises the potential risk of tech diversion in the hotly competitive and strategically sensitive AI space.
A potential expansion of the BIS 50% rule would, for industry, require vigilant tracking of corporate restructurings and offshoot entities. Enforcement of and compliance with such a rule would hinge not just on known entities, but also on anticipating evolving fronts for tech access.
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That overlap in scope, as well as the timing of the subsidiary’s launch, raises the potential risk of tech diversion in the hotly competitive and strategically sensitive AI space.
The bottom line
Current BIS regulations leave unlisted subsidiaries like these free to seek U.S. tech in a way that their Entity Listed parents cannot.A potential expansion of the BIS 50% rule would, for industry, require vigilant tracking of corporate restructurings and offshoot entities. Enforcement of and compliance with such a rule would hinge not just on known entities, but also on anticipating evolving fronts for tech access.
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