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Malaysia is planning to tighten regulations on semiconductors as it comes under US pressure to staunch the illicit flow to China of chips crucial to the development of artificial intelligence.
The country’s trade minister said Washington was demanding Malaysia closely track the movement of high-end Nvidia chips that enter the country over suspicions that many are ending up in China, in violation of US export rules.
He added that he had formed a task force with digital minister Gobind Singh Deo to tighten regulations around Malaysia’s burgeoning data centres industry, which relies on chips from industry leader Nvidia.
“[The US is] asking us to make sure that we monitor every shipment that comes to Malaysia when it involves Nvidia chips,” Zafrul Aziz told the Financial Times.
“They want us to make sure that servers end up in the data centres that they’re supposed to and not suddenly move to another ship.”
The US has imposed export controls on advanced semiconductors and related equipment in an effort to obstruct China’s development of next-generation technologies, including AI, which may have military applications.
Anxiety in the region over the illicit chip trade has escalated in recent weeks, after Singapore charged three men in a $390mn fraud case related to the suspected sale of Nvidia chips via Malaysia to China.
In the final days of Joe Biden’s presidency, the US introduced export controls that created a three-tier licensing system for AI chips used in data centres, such as Nvidia’s powerful graphics processing units. The system was aimed at hindering Chinese companies’ efforts to circumvent US restrictions by accessing the chips via third countries.
Nvidia’s Singapore office accounts for nearly a quarter of its global sales, raising suspicions in Washington that some of the chips are leaking into China.
The company has said almost all of these sales constitute invoicing of international companies through Singapore and very few chips pass through the city-state.
Three weeks ago, Singaporean police arrested nine people — three of whom were charged — following raids on 22 locations over suspicion of fraudulent sales of servers containing Nvidia chips.
Prosecutors said the fraudulent sales included Dell and Supermicro servers. Singapore has requested assistance from the US and Malaysia in investigating the movements of the servers.
Zafrul said US authorities believed the Nvidia chips ended up in China after passing through Malaysia. But he said the investigation had turned up no evidence that the chips arrived at the Malaysian data centre to which they were purportedly sold.
Malaysia has become one of the fastest-growing markets for data centre development, much of it concentrated in the southern state of Johor.
The state has drawn in more than $25bn of investment from the likes of Nvidia, Microsoft and TikTok owner ByteDance in the past 18 months to build data centres, and recently agreed to form a special economic zone with Singapore.
Zafrul emphasised the difficulty of tracking semiconductors through global supply chains, which involve chipmakers, suppliers and buyers as well as companies involved in manufacturing and distributing servers.
“The US is also putting a lot of pressure on their own companies to be responsible for making sure they arrive at their rightful destination,” he said. “Everybody’s been asked to play a role throughout the supply chain.”
He added: “Enforcement might sound easy, but it’s not.”
Additional reporting by Mure Dickie in London
