Taiwan is moving to criminalize the unauthorized export of advanced AI chips to China, aiming to close a loophole exposed when Nvidia-powered servers bought on the island reached Chinese buyers via Indonesia, Japan, and Hong Kong.
The Legislative Yuan’s Economics Committee held a public hearing on Monday on an amendment to the Foreign Trade Act proposed by lawmakers of the ruling Democratic Progressive Party (DPP). It would ban exports of specified integrated circuits, key wafer materials, components and chipmaking equipment to mainland China without government approval.
Violators would face up to 10 years in prison and fines of NT$5 million to NT$10 million (US$155,000 to US$310,000), according to the proposed amendment. The same penalties would apply to anyone shipping controlled goods to China through a third country, while illegal gains would be confiscated.
The bill follows a case in which prosecutors in Keelung indicted nine people in August this year, including the general manager of Taiwanese firm Flying Tiger Technology and staff at the local units of Nvidia and Super Micro Computer. They allegedly diverted 74 Nvidia B300 servers to Chinese buyers for a profit of more than NT$600 million (US$18.5 million).
Yet none of the nine faces an export charge. Prosecutors relied on breach of trust and document forgery under the Criminal Code, building their case around the fake end-user papers the group used to pass Nvidia’s and Super Micro’s checks and a cover story that the servers would run in a rented data center in Taiwan.
Selling the servers to China broke the two companies’ internal rules and US export curbs, but not Taiwanese law. In legal terms, Taipei was prosecuting a paperwork fraud rather than an export violation.
Taiwanese officials and commentators said the amendment would close that gap by making the unauthorized export of listed chips, materials and equipment to China a criminal offense in its own right, whether the goods are shipped directly or routed through a third country.
“As a global hub of the semiconductor and AI supply chains, Taiwan’s export controls on these products have drawn international attention,” William Liu, director-general of the International Trade Administration under the Ministry of Economic Affairs, said at Monday’s hearing. “Export controls have shifted from preventing weapons proliferation to becoming a strategic tool for countries to protect their technological edge and national security.”
He said the ministry was studying a full package of measures to bring high-end chips under control, giving enforcement a more appropriate legal basis and common standards. He added that this would help block illegal transshipments and safeguard Taiwan’s “silicon shield” while keeping the industry internationally competitive.
He said the ministry was working with overseas partners to step up enforcement as smugglers used increasingly sophisticated methods to evade controls, including:
- Laundering the origin of goods through third countries;
- Setting up shell companies in Southeast Asia and the Middle East;
- Declaring high-end AI chips as ordinary consumer chips; and
- Dismantling chipmaking tools, exporting the parts through different customs points and reassembling them overseas.
“The amendment is in line with the US-Taiwan reciprocal trade agreement and Taiwan’s national security interests,” said Wang Guo-chen, an associate research fellow at the Chung-Hua Institution for Economic Research (CIER). “But Taiwanese firms in China could be caught in a crossfire, facing Chinese fines if they follow US law and stop selling chips there, or US export controls if they listen to Beijing.”
However, Tseng Chih-chao, deputy secretary-general of the Association for Chinese Economic and Financial Research, said the amendment may not be enough to tackle Taiwan’s real security risks, as it targets only chips and related equipment and materials.
“Why does this amendment single out mainland China when the trade agreement with the US also covers North Korea, Iran and Russia?” he said. “If the current system has loopholes, the government should fix the general control mechanism rather than pass a law that is merely a policy statement.”
He said the Foreign Trade Act already allowed the ministry to designate controlled goods and destinations by public notice, while its entity list covered more than 11,000 entities. He added that adjusting those notices would be more flexible and efficient than writing specific countries and technologies into law.
Smuggling routes multiply
Since 2024, Nvidia-powered servers have repeatedly slipped through Taiwan and into China via Thailand, Indonesia, Japan and Hong Kong, but most smugglers were only exposed this year.
In March 2026, the US Department of Justice charged Super Micro co-founder Yih-Shyan “Wally” Liaw, the company’s Taiwan sales manager Ruei-Tsang “Steven” Chang and contractor Ting-Wei “Willy” Sun with conspiring to divert US-assembled servers containing restricted Nvidia chips to China. Liaw and Sun were arrested in California, while Chang, a Taiwanese citizen, remains at large.
US prosecutors said about US$2.5 billion worth of servers were sold to a Thailand-based company in 2024 and 2025, with at least US$510 million diverted to China between late April and mid-May 2025. To pass a compliance check, the group allegedly placed dummy servers in Thai warehouses and used hair dryers to swap labels and serial-number stickers.
Two months later, Taiwan’s Coast Guard Administration, acting on orders from Keelung prosecutors, searched 12 locations on May 20 and seized about 50 Supermicro servers worth more than US$15 million, along with luxury cars and NT$9 million in cash. Authorities detained three Taiwanese men on suspicion of forgery.
Prosecutors said the trio had shipped servers from a northern Taiwan port with export documents listing a Northeast Asian country as the destination. The country was later identified as Japan, with at least one shipment reportedly passing through Japan to Hong Kong and mainland China, the suspected final stop. The May 20 raid was the first stage of the investigation that led to the indictment of nine people in Keelung in August.
In June, media reports said Taipei was considering restricting AI chip sales to all customers in China, not just firms on its export blacklist such as Huawei, as part of its trade talks with Washington. The move would allow Taiwan to prosecute AI chip smuggling as a crime for the first time.
Last month, Economy Minister Kung Ming-hsin said the government would add AI servers and cutting-edge semiconductors to Taiwan’s export-control list, making unauthorized shipments of such hardware to China a criminal offense under the Foreign Trade Act.
“Going forward, some of our measures on controlled items will correspond to American ones because we have made quite some commitments in the Agreement on Reciprocal Trade,” Kung said.
However, the bill’s fate is uncertain. The opposition Kuomintang (KMT) and Taiwan People’s Party (TPP) together hold a majority in the Legislative Yuan, so a proposal from ruling-party lawmakers could stall in committee or in cross-party negotiations without their support, some observers say. Neither party has publicly stated its position on the bill.
President Lai Ching-te’s DPP government has another option. Under the Foreign Trade Act, the economy ministry can already designate controlled goods and destinations by public notice, though exports to China are currently restricted only for 12 categories of wafer-fabrication equipment.
Adding AI servers and high-end chips to that list would make unlicensed shipments to China a violation, with penalties of up to five years in prison, the route Kung outlined last month. Lin Ching-fu, a law professor at National Tsing Hua University, told the hearing this would achieve the bill’s aims without amending the act.
But a public notice cannot do everything the bill would. Only legislation could double the maximum jail term to 10 years, explicitly cover shipments routed through third countries and make confiscating illegal gains mandatory.
Read: China’s H200 hunger drives Nvidia chip smugglers to Japan route
Follow Jeff Pao on X at @jeffpao3
