In October 2022, the United States imposed strict export restrictions on high-performance semiconductors to China with the goal of hindering the progress of China's AI sector. Nonetheless, it appears that Chinese traders have been able to procure Nvidia's highly coveted AI processors through secondary markets in nations such as Malaysia, Vietnam, and Taiwan.

In response, Malaysia has formed a task force to strengthen regulations in this area. The U.S. has urged Malaysia to ensure that servers featuring Nvidia chips are delivered to their designated data centers rather than being redirected.

Recently, authorities in Singapore apprehended nine individuals believed to have falsely marketed servers containing Nvidia chips. This operation allegedly involved the transfer of Nvidia AI chips to China via Malaysia, with deals amounting to around 390 million dollars.

Malaysia is investigating whether these server shipments breached local regulations. U.S. officials suspect that Nvidia chips brought into Malaysia may ultimately have made their way to China. The ongoing Malaysian inquiry has yet to uncover evidence that the chips reached the Malaysian data centers they were supposedly intended for.

Tracking chip movements is complicated due to the intricate nature of the global supply chain, which includes manufacturers, suppliers, buyers, and companies involved in server production and distribution. The U.S. is also pressuring its companies to guarantee that products are delivered to their correct destinations. While enforcement may seem simple, it is quite complicated.

In January 2025, the U.S. rolled out the "Export Control Framework for Artificial Intelligence Diffusion," a new export control regulation that places Malaysia in Tier 2, limiting access to advanced AI chips like GPUs to a maximum of 50,000 units over a two-year period.

The anticipated enforcement of export limitations by the U.S. government on AI chips is not expected to affect the functionality of existing data centers in Malaysia. However, Malaysia is taking a prudent approach to assess any potential influence on future initiatives. The government intends to consult with stakeholders and the U.S. administration to gain a comprehensive understanding of the proposed regulations' ramifications.

Malaysia is dedicated to expanding its semiconductor market beyond the U.S., aiming to enhance exports to ASEAN, the Middle East, the Commonwealth of Independent States, and Africa, thereby reducing reliance on a single market.

This situation highlights the intricacies of global semiconductor supply chains and the difficulties nations encounter in balancing technological progress with adherence to international regulations.