MIDF Research said Tuesday that Malaysia’s curbs on US-origin artificial intelligence (AI) chips unlikely to affect data center investments in the country.

The research house said in a note that there is zero impact from this directive as far as data centers in Malaysia are concerned, because this is not an additional red tape that could delay the process of setting up a data center in Malaysia.

“Importing US-made advanced AI chips for use in their respective servers domestically does not trigger the new rules, unless the data center operators have plans to move the chips out of the country,” it said.

It noted that since the start of the year, it has always reiterated the point that while most new data centers are AI-ready, some may eventually be utilized for non-AI purposes.

A case in point is YTL Power, which had previously allocated 100MW for AI, of which the first 20MW is expected to be launched next month.

The remaining 80MW had since been converted into a colocation data center due to a shift in market landscape that saw a rush for colocation space.

“Even among AI-focused facilities, not all would need the top of the range AI chips,” it added.

The Ministry of Investment, Trade and Industry (MITI) has on Monday issued a new directive with immediate effect.

All exports, tranships and transits of high-performance AI chips of US origin in Malaysia are now subject to a Strategic Trade Permit (STP).

These powers are provided for under Section 12 of the Strategic Trade Act 2010 (STA 2010), a Catch-All Control provision which requires individuals or companies to notify the relevant authority at least 30 days before exporting, transhipping, or bringing in transit any item not expressly listed in the Strategic Items List (SIL), if the individual or company knows or have reasonable grounds to suspect the item will be misused, or used for a restricted activity.

Those governed under this new directive are all exporters, including intermediary companies, freight forwarders and other relevant stakeholders of the export, transit and transhipment control over advanced AI chips.

Individuals with the intent will be slapped with a jail term of not less than 10 years and a fine of not less than MYR 10 million ($2.35 million).

Where the unlawful act is unintentional by an individual, the punishment is ≥5 years’ jail and ≥MYR 5 million ($1.18 million) fine.

For corporates, these are ≥MYR 20 million ($4.71 million) fine and ≥MYR 10 million ($2.35 million) fine respectively.

“We believe this is the right move by MITI in order to clamp down and prevent any suspected smuggling of AI chips into China through intermediaries,

“This shows Malaysia’s willingness to take responsibility on the movement of US-origin AI chips out of the country by stepping up its enforcement,” MIDF said.

Regardless of the changes, from Biden’s rescinded Framework of AI Diffusion to the new rule being rewritten by the Trump administration, it believes the essence of it remains, which is to contain China’s AI advancement and to ensure that US AI chips are not used to train Chinese AI models.

MIDF has also mentioned previously that negotiations would revolve around the regulation and enforcement on the movement of US-made AI chips, the monitoring of its end-users and its seriousness in dealing with those that violate the control measures. MITI’s latest directive covers all these.

“It is hoped that this will be able to placate the US when negotiating the restrictions of AI chip exports under Trump’s refashioned AI Diffusion Rule,” it said.

According to MIDF, among speculations include replacing the three-tiered country system with a licensing regime based on government to government （G2G） agreements, which means that firms headquartered in the US and close allies may no longer be tied down to the 7 percent restriction of AI computing power to any country outside Tier 1, which allows for more AI capacities to be planned in other countries such as Malaysia.

While the media statement issued on Monday describes the STP as a blanket requirement for all exports, tranships and transits, MIDF said the MITI directive issued to all exporters seems to suggest that it is a follow up step after the 30-day notification if one knows or has reasonable grounds to suspect that the advanced AI chips are intended or likely to be used for a restricted activity.

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