Malaysia challenges US suspicions about country as hub for banned AI chips

Malaysia’s semiconductor industry is pushing back against suggestions that the country has been used as a transit hub to China for banned artificial intelligence chips.

A Reuters report last week revealed that the U.S. Department of Commerce was investigating whether China-based DeepSeek had accessed restricted Nvidia H100 chips through intermediaries in Singapore and Malaysia, amid organized smuggling networks circumventing export controls.

Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, insisted that strict safeguards were in place.

“The Nvidia GPU chips used for AI servers are only sold to approved vendors,” Wong told BenarNews. “If you are not an approved vendor, Nvidia won’t sell to you.”

Even legally purchased chips must be vetted by Nvidia before they can be used to assemble AI servers for data centers, he said. 

“Everything is accounted for,” he said. “So, if the U.S. thinks there is some leak from Malaysia, we don’t know how it is done.”

DeepSeek, a Chinese artificial intelligence startup based in Hangzhou, made headlines last month after claiming that its AI model, DeepSeek R1, rivaled OpenAI’s ChatGPT at a fraction of the cost. 

DeepSeek roiled financial markets, hitting tech shares and causing the Nasdaq to fall over 2% following its release in late January. In addition, European Nasdaq futures and Japanese tech shares fell on the back of the news.

A Nvidia spokesperson did not confirm to BenarNews whether its export-controlled chips were used by the Chinese firm but said: “We insist that our partners comply with all applicable laws, and if we receive any information to the contrary, we act accordingly.”

DeepSeek and the U.S. commerce officials did not immediately respond to BenarNews requests for comment.

Balance

Because AI investments could mean billions of dollars for Malaysia, Prime Minister Anwar Ibrahim has sought to balance ties between Washington and Beijing.

“Electrical and electronics exports, including chips, make up 26% of Malaysia’s exports to the U.S.,” Anwar told MPs on Tuesday, saying the country complied with global trade rules.

“We follow regulations and do not violate any United Nations trade sanctions.”

RELATED STORIES

US targets China’s chip industry with new export controls

Malaysia’s tech sector risks putting itself in US crosshairs

Malaysia to invest $5.3B to become ‘neutral’ semiconductor hub amid US-China tensions

“While we may seem closer to China and Brazil, we are maintaining relations with the U.S.,” Anwar said. “We won’t make drastic moves amid uncertainty – not just in geopolitics but also in trade policies that may change in the coming months.”

Speaking to fellow parliamentarians on Thursday, Tengku Zafrul Abdul Aziz, the Malaysian trade and industry minister, said AI models such as DeepSeek “could drive demand for Malaysia’s data centers and reinforce the country’s position as a neutral AI hub” for both Western and Chinese companies.

“DeepSeek, for instance, is seen as a disruptive player, offering high-capability AI models at lower costs while consuming less energy compared to current AI systems,” he said.

‘Raises questions’

Mark Minevich, a Washington-based AI industry analyst, said intelligence reports suggested that DeepSeek’s compute capabilities “may exceed what is possible with just H800s and H20s,” – a reference to low-end China-specific variants developed because of U.S. export controls. 

“[T]his raises questions about whether it has secretly integrated restricted hardware into its AI training infrastructure,” he said.

“If confirmed, such findings could prompt the U.S. to tighten enforcement measures and impose harsher penalties on entities facilitating unauthorized [chips] transfers to China,” he said in a LinkedIn post.

Asrul Hadi Abdullah Sani, a partner at ADA Southeast Asia, a regional consultancy firm, said Malaysia must “perform a balancing act” between welcoming Chinese investments and avoiding U.S. sanctions if it wants to be the region’s AI hub.

“Washington’s foreign policy hawks have previously targeted Malaysia following allegations that Iran used Malaysian companies to evade sanctions and transship oil to Singapore and other locations,” he told BenarNews.

“With China making substantial investments in data centers and Huawei building the country’s second 5G network, the Malaysian government is expected to face increasing pressure to uphold the integrity of the local E&E supply chain industry,” he said, referring to the electrical and electronics chain.