Epoch AI estimates $3B in chips smuggled to China via Malaysia

by@EpochAIResearch

Summary

Recent trade data indicates that over $3 billion worth of chips may have been smuggled into China via Malaysia, a flow that initiated shortly after the US imposed export controls on Nvidia's A800 and H800 GPUs in October 2023. Between April 2024 and June 2025, China recorded server imports from Malaysia valued at $3.75 billion, averaging a price of $106,000 per machine, while Malaysia declared these shipments at approximately $17,000 each. This discrepancy, coupled with the introduction of a permit requirement by Malaysia in July 2025, aligns with reports of significant smuggling activity as intermediaries sought to circumvent US restrictions. Investigations have revealed various schemes where cloud providers and assemblers actively diverted chips from legitimate channels to supply the Chinese market, contributing to an estimated 150,000 H100-equivalent chips potentially trafficked during this period.

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$NVDA

Analysis

China: China is a major global economy and a leading destination for advanced computing hardware. The news highlights how its recorded imports of servers from Malaysia show significant value discrepancies compared to Malaysian declarations, consistent with patterns of AI chip smuggling around US export controls. Nvidia: Nvidia designs and produces high-performance GPUs widely used in AI training and inference systems globally. Its products are at the center of the US export restrictions discussed in the news, creating incentives for the smuggling routes through Malaysia that the trade data analysis examines. Malaysia: Malaysia functions as an important Southeast Asian hub for electronics trade and transshipment. The news identifies it as a key intermediary route for servers ultimately destined for China, with the observed price gaps and subsequent drop in flows after new permitting rules taking effect pointing to potential diversion activity. Megaspeed: Megaspeed is a cloud services provider based in Singapore with data center operations in Malaysia. Investigative reporting cited in the news links the company to gaps between imported chips and those accounted for in its facilities, raising questions about possible involvement in smuggling networks. Supermicro: Supermicro manufactures servers and related hardware that integrate advanced GPUs from various suppliers. The news references indictments involving its employees in large-scale diversion schemes that allegedly funneled chips to China via intermediaries. Aqib Zakaria: Aqib Zakaria is an analyst specializing in technology policy and semiconductor issues. His independent modeling of smuggled compute volumes to China, referenced in the news, provides context that aligns with the new trade data insights on Malaysia as a transit corridor. Export Controls: US restrictions on advanced AI chips have prompted intermediaries to route shipments through third countries to reach restricted destinations. Transit Monitoring: Introduction of permitting requirements by transit countries can lead to sharp reductions in previously elevated trade flows of high-performance hardware. Enforcement Actions: Indictments and investigative reports have documented multiple schemes involving cloud providers and assemblers diverting chips away from legitimate supply chains.

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