Malaysia Closes A Back Door That May Have Allowed US-sourced AI Chips To Reach China

The government of Malaysia on Monday closed a back door that may have allowed the export of AI chips to China.

The nation’s Ministry of Investment, Trade, and Industry on Monday made an announcement [PDF] that it now requires exporters of “high performance AI chips of US origin” to obtain a strategic trade permit before shipping the semiconductors to China.

Malaysia issues such permits under its Strategic Trade Act of 2010, which applies to nuclear material, goods related to aerospace, and to electronics including computers and goods related to telecommunications and information security. The act allows for one-off permits, bulk permits, multiple-use permits, and special permits.

The latter are one-off permits issued for exports to restricted destinations. Malaysia will require exporters of advanced AI chips to acquire permit 30 days before shipping.

Malaysia’s sudden interest in strong regulation of semiconductor exports may be due to early July rumours that the USA was set to restrict exports to the Asian nation to stop trans-shipments to China. US policy prohibits export of advanced semiconductors to China, and Washington feared Malaysia had become a back door.

The Malaysian Ministry’s announcement states that the nation won’t tolerate export shenanigans and will use full force of local law to ensure “all entities operating in the country are expected to comply with relevant international obligations that are applicable to their operations to avoid any secondary sanctions on their businesses.”

"Malaysia stands firm against any attempt to circumvent export controls or engage in illicit trade activities by any individual or company, who will face strict legal action if found violating the laws,” the Ministry wrote.

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The announcement will likely please Washington, which recently frowned upon Malaysia’s plan to build a sovereign AI capability built on Huawei GPUs and last week imposed a 25 percent tariff on imports from the Asian nation.

Whether tightening export restrictions helps Malaysia to secure a lower rate of tariffs remains to be seen. Another related issue to watch is whether Singapore makes a similar announcement, as entities based in the tiny island nation sometimes account for over 20 percent of Nvidia’s revenue. Singapore is home to a vigorous datacenter sector, but it’s nowhere near big enough to use huge quantities of Nvidia gear, arousing suspicions that the nation is used to trans-ship accelerators to other destinations. ®