Malaysian authorities have launched an investigation into allegations that Chinese companies circumvented U.S. semiconductor export controls by renting data centers in Malaysia to use Nvidia's artificial intelligence (AI) semiconductors.
According to the Wall Street Journal (WSJ) and the South China Morning Post (SCMP) on June 20 (local time), Malaysia's Ministry of Investment, Trade and Industry announced that it is investigating media reports claiming that Chinese companies used data center servers equipped with Nvidia chips in Malaysia to train large language models (LLMs) for AI.
The Ministry stated in an official announcement, "We are currently working with relevant agencies to determine whether there have been any violations of domestic laws or regulations."
The WSJ recently reported that Chinese engineers brought hard drives containing data necessary to build AI models into Malaysia in order to bypass U.S. chip regulations. These engineers reportedly rented servers equipped with high-performance Nvidia chips at a data center in Malaysia to train AI, and recently returned to China with several hundred gigabytes (GB) of data, including AI models.
The United States controls the export of advanced technology semiconductors, including those from Nvidia, to China. However, Malaysia is not subject to these restrictions.
The Ministry of Investment, Trade and Industry stated that it will take strong action against any companies found to have violated Malaysian or international trade laws, including those in the semiconductor and AI sectors. The Ministry also emphasized that it will not tolerate illegal transactions or attempts to circumvent export controls.
However, this allegation has raised concerns that the United States may increase pressure on Malaysia, such as by tightening chip controls. The SCMP noted that, since the U.S. has been monitoring China's access to advanced chips through third countries, the current allegations could become a potential obstacle in U.S.-Malaysia customs negotiations.
Eric Low, a partner at Malaysian strategic advisory firm Densui, told the SCMP that Malaysia must now reassure the United States that its controls on semiconductor exports to China are thorough. Otherwise, this incident could be considered a failure to comply with export controls or even a national security threat. He stated, "This could put Malaysia's trade negotiations at risk and lead to stricter regulations on Malaysian companies operating in the U.S. or doing business with the U.S."
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