Southeast Asia’s chip-hub ambition is colliding with its chip-smuggling problem

Southeast Asia is rapidly becoming a hub for AI infrastructure, attracting investment and boasting efficient logistics. However, this surge has also brought about a major chip-smuggling problem, where advanced Nvidia chips are being routed through intermediaries in Malaysia, Singapore, Thailand, and Hong Kong. The issue has grown so prevalent that Southeast Asian ports and customs agencies are now routinely appearing in export-control enforcement filings, not as victims, but as the perpetrators of evasion tactics.

The smuggling patterns have become increasingly sophisticated, with Chinese AI firms reportedly flying hard drives to Malaysia for model training on already-installed Nvidia chips, bypassing border controls altogether. This has led to a growing tension for regional governments, who strived to become credible jurisdiction for multinational AI infrastructure, while simultaneously becoming the preferred transshipment layer for chips headed to sanctioned end users.

The US has responded by passing the Chip Security Act, which aims to embed location-tracking technology into chips to prevent their unauthorised movement. While this is a significant step forward, it is a US-built solution to a problem that the region itself created, and will take years to fully implement. In the meantime, the smuggling problem continues to undermine the credibility of Southeast Asian governments as preferred destinations for advanced compute infrastructure.