Chinese AI companies are allegedly evading US export restrictions on advanced Nvidia chips by smuggling hard drives containing vast amounts of data to Malaysia. According to a report by the Wall Street Journal, four Chinese tech workers flew from Beijing to Kuala Lumpur, each carrying 15 hard drives with a total of 80 terabytes of data per drive. This elaborate operation was months in the making, with the engineers choosing to transport the data physically on hard drives to avoid detection during online transfer.
The four passengers distributed the hard drives among themselves to avoid raising suspicions with Malaysian customs and immigration officials. Upon arrival, they proceeded to a Malaysian data center where their company had rented 300 Nvidia AI servers to process the data and develop their AI model. To obscure their activities, the Chinese AI company utilized a Singapore-registered subsidiary to initially sign the rental agreement for the Malaysian data center. However, after Singapore tightened its AI tech export controls, the Malaysian company requested that its Chinese client register locally to avoid scrutiny.
This complex process of setting up a local operation and manually transporting data on hard drives is more complicated than training AI models in China. However, the US export bans have made it increasingly difficult for companies to import the advanced hardware required for AI training. Despite Nvidia’s claims that there’s no evidence of chip diversion, a thriving black market for smuggled Nvidia chips exists in China, with companies obtaining these chips through subsidiaries and other businesses based in neighboring countries.
The financial burden of such operations is significant, particularly due to the increased risk that likely prompts suppliers to charge a premium for the servers they sell. Recent pressure from the White House on these countries has further complicated these transactions. As a result, exporting data has become a viable alternative for some Chinese companies instead of importing hardware.
These evasion tactics highlight the challenges the US faces in enforcing export bans on powerful chips. The US Senate has discovered that the Commerce Department is underfunded and ineffective in enforcing these controls. While Washington’s sanctions are gradually taking effect with increased enforcement, the fact that Chinese companies are going to great lengths to circumvent AI chip bans indicates that the White House has a significant task ahead of it.
