Malaysia has announced new regulations requiring permits for the export of high-performance US artificial intelligence chips, aiming to prevent the illicit diversion of such technology to China. The new rules, effective immediately, demand that companies and individuals notify Malaysian authorities 30 days in advance of any such exports.

Tightening Controls on AI Hardware

Malaysia’s Ministry of Trade and Industry said the measure is intended to close regulatory gaps and prevent misuse of the country’s jurisdiction for illegal trading. Exporters must inform the ministry if they know or suspect the components might be used for restricted purposes. “Malaysia will not tolerate the misuse of its jurisdiction for illicit trading activities,” the ministry said.

The step comes amid growing US concerns that AI chips—particularly those from Nvidia—are being smuggled to China through third countries such as Malaysia. Washington has already banned direct sales of advanced AI chips to China since 2022 and is drafting further regulations targeting Southeast Asia. Malaysian officials did not confirm whether the new measures came at the request of the US.

Semiconductor Supply Chain Under Scrutiny

Malaysia’s data center industry relies heavily on AI hardware, with major firms like Oracle expanding operations there. The country has seen rising imports of key components, coinciding with US moves to tighten controls. The new permits are part of a broader reassessment, which may soon place AI chips under Malaysia’s Strategic Trade Act.

The new regulations follow reports of suspected smuggling involving Singapore, where courts are handling cases related to fraudulent shipments of AI servers potentially containing Nvidia chips. Malaysia said its own investigation found no evidence of such activity but pledged continued vigilance.

US Trade Pressure Remains

While the Trump administration paused plans to require US licenses for AI chip exports to Malaysia earlier this year, Washington is considering renewed efforts targeting both Malaysia and Thailand to block potential diversions to China. Nvidia CEO Jensen Huang has downplayed concerns, saying there is “no evidence” of significant diversion.

Malaysia remains engaged in trade talks with the US, seeking to lower tariffs while clarifying misunderstandings over chip regulations. The ministry warned that unilateral restrictions could disrupt legitimate trade and hinder innovation.