Regulations on semiconductors to be tightened, says Tengku Zafrul Aziz

Malaysia would be tightening regulations on semiconductors soon due to US pressure to stem the illicit flow of chips to China crucial to the development of artificial intelligence.

Minister of Trade, Investment and Industry Tengku Zafrul Aziz 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.

A task force has been formed with Digital Minister Gobind Singh Deo to tighten regulations around Malaysia’s growing 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 said, the Financial Times reported.

“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.”

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.

Singapore has charged three men in a US$390 million fraud case related to a suspected sale of Nvidia chips via Malaysia to China which has led to a worry across Southeast Asia on the rise of illicit chip trade.

No evidence in Malaysia on Nvidia chips

Zafrul said US authorities believed the Nvidia chips ended up in China after passing through Malaysia.

The investigations however turned no evidence to prove that the chips arrived at the Malaysian data centre to which they were purportedly sold.

Malaysia is 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 US$25bilion 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.

“Enforcement might sound easy, but it’s not.”