For Chinese AI companies, US government restrictions on NVIDIA chips only kick in if they give up. These companies have once again found a workaround to obtain NVIDIA hardware. 

According to the Wall Street Journal, engineers from Chinese AI companies are heading to Kuala Lumpur, Malaysia, with hard drives packed with instructions and data to train AI models. They then utilise the NVIDIA chips available in Malaysian data centres to train the model and return it to China. 

The report added that engineers decided it would be faster to fly physical hard drives with data into Malaysia than to transfer data online. This unnamed Chinese company also reportedly registered an entity in Malaysia to avoid raising suspicions. 

The aforementioned method is deemed an alternative to directly smuggling NVIDIA hardware in China, which was made difficult due to recent crackdowns from multiple government agencies. 

For instance, Malaysia’s semiconductor industry closely monitors the movement of chips across borders, aligning with the US push for stricter regulations on suspected stock movement through the Southeast Asian country. 

Malaysia and Singapore are listed as Tier 2 countries in the US government’s Framework of Artificial Intelligence Diffusion, which permits limited chip exports without a license.

China is categorised in Tier 3, where exports are banned or highly regulated. However, this existing framework will be replaced with a more straightforward approach, moving away from the tier-based system. 

Moreover, authorities in Singapore and the US are investigating allegations that NVIDIA chip servers worth $390 million sent to Malaysia were fraudulently redirected to China. 

Furthermore, last month, a US lawmaker introduced a bill to address chip smuggling. The bill would require companies like NVIDIA to include technology to verify the location of their chips before exporting them. 

Live Lobsters, Baby Bumps and Toys

The regulations, scrutiny, and crackdown were implemented in response to Chinese AI companies employing multiple illicit methods. 

The Centre for a New American Security (CNAS), a US-based think tank specialising in national security issues, estimated that out of the 22 “notable” AI models developed in China as of 2025, only two were trained with Chinese chips. 

“Most of the Chinese chip sellers interviewed in these [media] reports confirm that they work with multiple distributors, use shell companies based overseas, and employ simple tactics to avoid detection, such as relabeling shipments as tea or toys,” the CNAS report read. 

Last year, The Information reported that an unnamed electric appliance company in eastern China had ordered hundreds of servers equipped with NVIDIA’s H100 GPUs, worth $120 million, with the help of a chip broker in Malaysia. This broker had assisted the Chinese firm in setting up a shell company in Malaysia and renting space in a data centre.

The report highlighted many such cases of Chinese companies illegally obtaining NVIDIA chips. 

Moreover, as per a Reuters report, Chinese universities and research institutes had acquired GPUs from resellers in the country. These resellers purchased servers from Super Micro Computer and Dell, which were equipped with NVIDIA chips. 

Besides, Amazon-backed Anthropic, the AI lab that built the Claude family of models, said that smugglers in China hide processors in “prosthetic baby bumps” and pack GPUs alongside live lobsters. 

Singapore accounts for a considerable part of NVIDIA’s reported revenue, despite very few physical hardware shipments to the country. Between August and October 2024, Singapore contributed 22% to NVIDIA’s sales revenue. 

However, Bloomberg reported that actual physical shipments to Singapore account for only 1% of NVIDIA’s total revenue, showing a significant gap between where NVIDIA records sales and where its hardware is actually delivered. In Q1 2025, Singapore accounted for 20% of NVIDIA’s billed revenue. 

Citing publicly available information, the CNAS report said there were 1 lakh H100 GPUs as of December 2024. 

NVIDIA and Trump’s AI Czar Deny Chip Smuggling

While Anthropic accused Chinese companies of smuggling GPUs, NVIDIA reportedly denied such claims. 

An NVIDIA spokesperson said American firms like Anthropic should focus on innovation and rise to the challenge, “rather than telling tales about large, heavy and sensitive electronics somehow being smuggled in baby bumps or alongside live lobsters”. 

Furthermore, the ‘AI czar’ appointed by US President Donald Trump, David Sacks, also refuted the practicality of such smuggling mechanisms. 

In an interview at the AWS Summit last month, Sacks said, “We talk about these chips like they can be smuggled like diamonds in a briefcase—that’s not what they look like. These are server racks that are eight feet tall and weigh two tonnes.”

“They don’t magically walk out the door,” he added. 

That being said, despite Chinese companies reportedly using various techniques to work with NVIDIA chips, the company isn’t backing down either. 

The US government and NVIDIA have been engaged in an ongoing cycle of restrictions and workarounds. The government has repeatedly blocked NVIDIA from selling high-end AI chips, prompting the company to develop less powerful versions that comply with the new limits. This pattern has repeated multiple times.

Currently, NVIDIA is reportedly developing a new chip that is less powerful and less expensive than its H20 chips, which are the latest to face US government restrictions.

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