Accordingly, affected Chinese customers include teams working on high-performance computing, graphics processing units (GPUs) and AI computing using 7-nanometer chips, excluding microprocessors for mobile, communications and connectivity.

According to Nikkei Asia, TSMC has been evaluating customers using 7nm technology or more after discovering some suspicious activities aimed at circumventing US export control regulations with Huawei. TSMC has sent a list of these customers to the US Department of Commerce.

Another source said TSMC has told some Chinese customers with high-computing chip designs that they need to work with the US Commerce Department's Bureau of Industry Security to notify them that their chip designs can be manufactured by TSMC.

“The move is aimed at tightening oversight of possible attempts to circumvent US export controls,” the source said. “Currently, the oversight responsibility lies primarily with TSMC itself, but in the future, Chinese customers will also be held more accountable.”

Chinese media outlet Jiwei said TSMC will stop shipping products made using 7nm or more advanced technology to Chinese AI chip customers starting next week.

The Chinese market accounted for about 12% of TSMC's total revenue of 2.16 trillion Taiwan dollars ($67.3 billion) last year, while the US is the Taiwanese chipmaker's largest market at 65% of revenue.

In the most recent quarter, US customers accounted for 71% of TSMC's revenue, compared with China's 11%.

TSMC denies selling chips to Huawei TSMC insists it does not sell chips to Huawei, after TechInsights discovered that Huawei's Ascend 910B processor contains components from the Taiwanese company.