China’s Ingenious Workaround of AI Chip Restrictions
In March, four Chinese engineers flew to Malaysia, each carrying a suitcase packed with hard drives containing a staggering 80 TB of diverse data. This unusual luggage was not surprising to them; they were on a mission to train artificial intelligence (AI) models while expertly navigating the restrictions imposed by the United States.
An Astounding Plan. The engineers transported these hard drives to a data center in Malaysia, where they had rented 300 servers featuring the latest NVIDIA AI chips . According to reports from The Wall Street Journal, this arrangement enabled them to train their AI model significantly more efficiently. They returned with the hard drives in a single suitcase, yielding hundreds of GB of data, which included the parameters essential for guiding the behavior of the AI model.
Navigating the US Ban. Chinese AI companies have been grappling with the restrictions imposed by the US, aimed at curbing the export of advanced chips and AI technologies . Recently, Huawei’s Ascend 910D has emerged as a competitor to NVIDIA. Furthermore, China has been sourcing specialized GPUs through the black market or from third-party countries.
If the Mountain Will Not Come to Muhammad. Given these restrictions, another pathway for competing in AI development involves accessing advanced chips not by sending them to China, but by traveling to countries where servers with those GPUs can be rented. According to WSJ, this is precisely what the engineers did, preparing for the operation for several months.
Transporting Hard Drives Back and Forth. The engineers decided it was faster and more efficient to carry hard drives in suitcases between countries rather than transferring vast amounts of data over the internet, which would have been time-consuming. They spent over two months refining the training datasets and preparing the process, understanding that adjustments in Malaysia would be challenging.
A Ghost Subsidiary. To evade suspicion, the Chinese company established a subsidiary in Kuala Lumpur , appointing three Malaysian citizens as executives and creating an offshore holding company as its parent entity, according to official registry documents. This strategy was aimed at preventing potential investigations that might hinder their plans.
Asian Data Centers. The technique employed by these engineers is remarkable and may be utilized by other Chinese firms, as highlighted by the journal. Recently, there has been a notable increase in the number and capacity of data centers in Southeast Asia. According to Jones Lang Lasalle , Malaysia, Singapore, Thailand, and Indonesia now collectively host data centers contributing a combined capacity of 2 MW, equivalent to that of existing data centers in London and Frankfurt.
Malaysia in the Spotlight. Malaysia is rapidly accelerating the construction of data centers, having imported AI chips worth $3.4 billion from Taiwan in March and April alone, exceeding the total spending for all of 2024. Activities such as those conducted by the Chinese engineers raise concerns for the US government, which is desperately trying to prevent China from gaining access to advanced chip technology.
Concern in the Middle East. In recent weeks, former President Donald Trump has entered into notable agreements with countries in the Middle East, allowing the export of advanced AI chips to Saudi Arabia and the UAE. However, US regulators warn that these chips could ultimately end up in China, raising alarms about a potential backdoor access to advanced technology.
The ongoing cat-and-mouse game between US authorities and Chinese tech firms showcases the lengths to which companies will go to circumvent restrictions. As global demand for AI technology surges, countries like Malaysia are positioned as crucial players in this evolving landscape, igniting both opportunity and concern within the realm of international tech regulations.