Chinese AI Firms Fly Hard Drives, Tap Foreign Nvidia Servers to Sidestep U.S. Chip Ban

Four Chinese AI engineers carried suitcases packed with 15 hard drives each, totaling 80 TB of training data, from Beijing to Malaysia. Once there, their company leased around 300 Nvidia-powered servers at a Malaysian data center. The engineers trained their model overseas and then returned home with the resulting model parameters.

U.S. export rules, tightened in 2022, prohibit advanced AI chips from being sold to China. These limits aim to protect national security, but companies are finding workarounds. Initially, some Chinese developers used domestic chips or smuggled hardware through third countries. Now, they bring training data abroad to leverage foreign compute clusters without breaking export rules.

The Wall Street Journal reports that one company spent over two months preparing its datasets and optimizing its training code before leaving China. The first attempt via a Singapore-registered subsidiary ran into scrutiny, so they switched to a locally registered Malaysian entity with Malaysian directors, generating less attention. To avoid customs delays, they placed hard drives in four different suitcases rather than one ginormous bag .

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These tactics highlight growing foreign data center capacity. Southeast Asia now hosts nearly 2,000 MW of data-center power, comparable to London and Frankfurt combined. The trend isn’t limited to Malaysia. The Middle East is also expanding compute availability, with Nvidia recently selling AI chips to Gulf nations.

The U.S. considered using country-specific caps to block the resale of American chips through places like Malaysia, but dropped that plan over concerns it would burden U.S. firms like Nvidia. Instead, Washington now warns chip manufacturers to enforce end-user restrictions and prevent Chinese clients from accessing U.S.-made hardware indirectly.

This pattern shows the challenge in enforcing export controls. Chinese firms are increasingly outsourcing the compute step, sending data overseas rather than smuggling hardware back home. Enforcement agencies in Southeast Asia have begun cracking down, Singapore recently investigated individuals who misrepresented Nvidia server shipments .

China now avoids moving chips to move data. As Southeast Asia and the Middle East scale up server infrastructure, expect more AI model training to happen there. That, in turn, forces regulators to rethink how to trace not just hardware, but the intent and flow of data. You can read more about it in the Wall Street Journal’s report here.

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