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KUALA LUMPUR, Malaysia—In early March, four Chinese engineers flew to Malaysia from Beijing, each carrying a suitcase packed with 15 hard drives. The drives contained 80 terabytes of spreadsheets, images and video clips for training an artificial-intelligence model.

At a Malaysian data center, the engineers’ employer had rented about 300 servers containing advanced Nvidia chips. The engineers fed the data into the servers, planning to build the AI model and bring it back home. 

Since 2022, the U.S. has tightened the noose around the sale of high-end AI chips and other technology to China over national-security concerns. Yet Chinese companies have made advances using workarounds.

In some cases, Chinese AI developers have been able to substitute domestic chips for the American ones. Another workaround is to smuggle AI hardware into China through third countries. But people in the industry say that has become more difficult in recent months, in part because of U.S. pressure. 

That is pushing Chinese companies to try a further option: bringing their data outside China so they can use American AI chips in places such as Southeast Asia and the Middle East.

The maneuvers are testing the limits of U.S. restrictions. “This was something we were consistently concerned about,” said Thea Kendler, who was in charge of export controls at the Commerce Department in the Biden administration, referring to Chinese companies remotely accessing advanced American AI chips.

Layers of intermediaries typically separate the Chinese users of American AI chips from the U.S. companies—led by Nvidia—that make them. That leaves it opaque whether anyone is violating U.S. rules or guidance.

The Biden administration proposed in its final days to set country-specific caps on purchases of American chips—a move that would have made it harder for countries such as Malaysia to serve Chinese demand. Kendler said overseas buyers of U.S. chips would have had to agree to national-security conditions limiting use of the chips, and such restrictions could have included a bar on Chinese companies accessing them.

The Trump administration said in May it would scrap the proposed country caps because it said it didn’t want to place an unnecessary regulatory burden on Nvidia and other U.S. companies. However, it issued guidance warning U.S. companies that they need to take steps to prevent customers from using U.S. AI chips to train Chinese AI models. 

The Commerce Department and Malaysia’s Ministry of Investment, Trade and Industry didn’t respond to requests for comment.

Careful planning

At the Chinese AI developer, the Malaysia game plans take months of preparation, say people involved in them. Engineers decided it would be fastest to fly physical hard drives with data into the country, since transferring huge volumes of data over the internet could take months.

Before traveling, the company’s engineers in China spent more than eight weeks optimizing the data sets and adjusting the AI training program, knowing it would be hard to make major tweaks once the data was out of the country.

The Chinese engineers had turned to the same Malaysian data center last July, working through a Singaporean subsidiary. As Nvidia and its vendors began to conduct stricter audits on the end users of AI chips, the Chinese company was asked by the Malaysian data center late last year to work through a Malaysian entity, which the companies thought might trigger less scrutiny.

The Chinese company registered an entity in Kuala Lumpur, Malaysia’s capital, listing three Malaysian citizens as directors and an offshore holding company as its parent, according to a corporate registry document.

To avoid raising suspicions at Malaysian customs, the Chinese engineers packed their hard drives into four different suitcases. Last year, they traveled with the hard drives bundled into one piece of luggage.

They returned to China recently with the results—several hundred gigabytes of data, including model parameters that guide the AI system’s output.

The procedure, while cumbersome, avoided having to bring hardware such as chips or servers into China. That is getting more difficult because authorities in Southeast Asia are cracking down on transshipments through the region into China.

In February, Singaporean authorities accused three people of lying about the ultimate destination of Nvidia servers worth millions of dollars that they had procured. Lawyers for the three didn’t respond to requests for comment. Singapore authorities have said that while they aren’t legally obliged to enforce other countries’ export controls, they won’t condone businesses using their association with Singapore to avoid the controls.

Southeast Asia boom

Computing centers are quickly sprouting up in Southeast Asia, serving both Western and Chinese customers.

Data-center capacity is often measured in power consumption, and real-estate-services company Jones Lang LaSalle estimates there are nearly 2,000 megawatts of data-center capacity in Singapore, Malaysia, Thailand and Indonesia. That is equivalent to the combined capacity in London and Frankfurt, Europe’s biggest data-center markets.

Earlier this year, a Beijing-based tech firm took over a lease for 200 AI servers that a data center in Malaysia had originally earmarked for an American cloud-computing company, according to people familiar with the arrangement.

In recent months, companies have rushed to purchase chips developed by Nvidia and Advanced Micro Devices to install in data centers in Southeast Asia. The Trump administration for now isn’t moving ahead with caps on those nations’ chip purchases.

An Nvidia representative said, “Ensuring that the world’s cloud services run on American infrastructure, and not on our foreign competition, promotes national and economic security and helps the U.S. set global AI standards.”

President Trump and Nvidia CEO Jensen Huang looked on as U.S. and U.A.E. officials signed an AI pact in Abu Dhabi last month.

Malaysia imported $3.4 billion in AI chips and other processors from Taiwan in March and April, more than the total imports of such chips in 2024, according to Taiwan’s International Trade Administration.

Some in the industry said the Middle East was likely to grow as a destination for Chinese AI developers. During a recent visit by President Trump to the region, Nvidia announced deals to sell hundreds of thousands of AI chips to Saudi Arabia, Qatar and the United Arab Emirates.

In January, Adam Ooi, a director at a Malaysia-based family office, invested $5 million in a fund that acquires AI servers for leasing. After securing customers in China, Singapore and Indonesia, the fund manager purchased hundreds of Nvidia servers for installation in a data center in Malaysia.

“They convinced me that it’s a business with promised returns and that we should move fast before the rules tighten up,” Ooi said.