Chinese AI companies are reportedly smuggling hard drives to Malaysia in order to train their AI models without technically breaking the export controls that the U.S. has placed on advanced Nvidia chips heading into China. According to the Wall Street Journal, four Chinese tech workers flew in from Beijing to Kuala Lumpur, each one carrying 15 hard drives with 80 TBs worth of data each for training an AI model.
This was a meticulously planned operation and took several months of preparation. Sources say that the engineers chose to fly in the data on hard drives, because it would take a lot of time to transfer the data online without attracting attention. They then divvied up the hard drives between four passengers to avoid raising alarm bells with Malaysian customs and immigration officers. The Chinese personnel then proceeded to a Malaysian data center, where their company rented 300 Nvidia AI servers to process the data and build the AI model.
The involved companies also made some legal moves to muddy the waters. The Chinese AI company had previously used the same process to train its model using the Malaysian data center, with its Singapore-registered subsidiary signing the rent agreement. But with Singapore clamping down on AI tech exports, the Malaysian company asked its Chinese client to register locally and avoid scrutiny.
Setting up a local operation and manually bringing in the data on hard drives makes training more complicated than doing it in China. However, the U.S.’s bans are making it harder for companies to import the advanced hardware they require for AI training. Despite Nvidia’s claims that “there is no evidence of chip diversion”, there is a healthy black market in China for smuggled Nvidia chips, and they’re able to get them through subsidiaries and other companies based in nearby countries.
Still, doing this requires a lot of money, especially as the increased risk means suppliers likely put a premium on the servers they sell. It has also reportedly become more difficult recently because of the pressure that the White House has been putting on these countries. So, instead of importing the hardware, the next best option for some of these Chinese companies is to export the data instead.
Moves like this show how difficult it is for the U.S. to enforce the export bans that it has put on these powerful chips. More than that, the U.S. Senate has found out that the Commerce Department is woefully underfunded and has been ineffective at enforcing these controls. Although it seems that Washington’s sanctions are slowly starting to take effect with increased enforcement, the fact that Chinese companies take these steps to circumvent AI chip bans shows that the White House has got its work cut out for itself.
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