As the investigation into Nvidia Founder Jensen Huang's alleged Chinese links gathers pace, the US government investigators are focusing on how the tech giant's highly valued chips ended up in China despite strict restrictions. The investigation will centre around the role played by entities such as the Singapore-based cloud company Megaspeed, whose top executive, Alice Huang, has been linked to Nvidia founder in evading US restrictions.
Apart from the US Department of Justice, the FBI and the US Congress are looking into a possible serious breach despite the US policy that aimed at limiting Chinese access to advanced technology. National security and strategic technological competition govern these policies.
But that may have been now compromised following Huang's admission of an affair with Alice. The board of Nvidia itself is investigating the matter and is said to have appointed a top law firm. Interestingly, Huang had long argued that a total ban on shipping US chips to China was counterproductive.
Doubts over Nvidia's China links are not new. In May this year, short-selling firm Culper Research had flagged Nvidia's alleged exposure to China through intermediaries such as Megaspeed, which was based in Singapore and Malaysia. Though Nvidia itself had claimed that its direct sales to China had dropped to zero, Culper Research found—through former Nvidia employees—that up to 40 per cent of the company's data centre business was linked to China.
How did the chips reach China?
The US export restrictions prevent direct sales of the chips to companies registered, headquartered or controlled by China. To bypass this, the chips are routed to entities set up in Singapore, Malaysia, Indonesia, and Thailand. Culper Research found out that Nvidia reported revenue based on bill-to headquarters of a company, and not to the end user of the chips. This enabled servers loaded with Nvidia chips to be sold to these entities. From these companies, the servers were shipped to China.
Culper Research also said it has uncovered funding from Chinese companies, including from tech giant Alibaba. These funds were used by the entities in Singapore or Thailand to order servers with Nvidia chips. Another way was to install these servers in Southeast Asian locations. Chinese entities then accessed these servers via cloud infrastructure.
This was the kind of operation that helped Megaspeed and its Malaysian unit Speedmatrix to grow exponentially. Prior to 2023, Megaspeed had negligible operations and revenues. But in the following three years, it grew into a multi-billion-dollar operation. From $33 million, its topline jumped to $3 billion. Reports further added that its Malaysian unit Speedmatrix procured at least $4.8 billion worth of server equipment containing Nvidia chips.
Now, this method to circumvent border restrictions is not new. In fact, the Indian steel industry has long alleged that Chinese entities have dumped steel into India through countries in Southeast Asia despite India's putting up restrictions. India has regularly enforced anti-dumping duties on Chinese steel imports, but these become less effective when the product still finds its way through other nations.
This is the aspect that investigations in the US will want to correct. US investigators are likely to look into the whole network and examine all the players. This would include supply chain handlers who could have mislabelled or rerouted shipments to escape detection. The U.S. Congress would also re-examine the efficacy of its trade restrictions and take steps to strengthen them. The biggest and most public fallout could be Huang himself.
There is now a renewed urgency to pass the AI Overwatch Act, the US legislative proposal to restrict chip exports to countries that are adversaries. It is supposed to be much stricter than the current policy.
