Malaysia is set to tighten semiconductor regulations to address concerns over the illicit flow of Nvidia chips to China, the Financial Times reported.
This move comes as the US pressures Malaysia to monitor the movement of high-end chips, crucial for AI development, due to suspicions of export rule violations.
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The news publication quoted Malaysian Trade Minister Zafrul Aziz as saying that the US is demanding close tracking of Nvidia chip shipments entering Malaysia.
He noted the formation of a task force with Digital Minister Gobind Singh Deo to regulate Malaysia’s data centres industry, which relies heavily on Nvidia chips.
Aziz said: “The US is asking us to make sure that we monitor every shipment that comes to Malaysia when it involves Nvidia chips.
“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.”
In December 2024, the US government announced the plans to launch a trade investigation into Chinese semiconductors.
The US also imposed export controls on advanced semiconductors to hinder China’s development of technologies, such as AI, which may have military applications.
The issue has gained urgency following a $390m fraud case in Singapore linked to the suspected diversion of Nvidia chips via Malaysia to China.
The US had earlier introduced a three-tier licensing system for AI chips, including Nvidia’s graphics processing units, aimed at preventing Chinese companies from bypassing US restrictions through third countries.
Nvidia’s Singapore office, responsible for nearly a quarter of its global sales, has raised suspicions in Washington about chip leaks into China.
However, Nvidia had claimed that most sales involve invoicing international companies through Singapore, with few chips passing through the city-state.
Recently, Singaporean police arrested nine people, with three charged, for suspected fraudulent sales of servers containing Nvidia chips.
Singapore has sought assistance from the US and Malaysia in tracking server movements.
Zafrul Aziz mentioned that US authorities suspect Nvidia chips reach China via Malaysia, although investigations have found no evidence of chips arriving at the intended Malaysian data centre.
Malaysia’s data centre market, concentrated in Johor, has attracted more than $25bn in investments from companies such as Nvidia, Microsoft, and ByteDance in the past 18 months.
The state recently formed a special economic zone with Singapore.
Zafrul highlighted the complexity of tracking semiconductors through global supply chains, involving various stakeholders.
