US probe into S’pore shows frustration over inadequacy of chip curbs on China

Singapore has come under the spotlight in a US investigation into whether Chinese artificial intelligence (AI) start-up DeepSeek had circumvented US restrictions on advanced Nvidia chips

by buying them from companies in other countries

.

Analysts expect such scrutiny to intensify as the US-China AI race heats up and warn of US overreach in

restricting countries’ access to chips

and what they can do with the legally bought chips.

Since 2022, the US has progressively expanded the types of chips that cannot be sold to China and the geographical scope of the trade restrictions to cover more countries, in an attempt to slow down China’s application of AI to defence and other strategic industries.

Hangzhou-based DeepSeek’s release in January of its latest AI model R1

– touted to be as good as the ones by Google and OpenAI yet produced at a fraction of their costs – was a wake-up call to the US that its export controls had not worked as well as it had hoped, industry observers say.

US officials are investigating whether DeepSeek used third parties in Singapore and other countries to acquire advanced Nvidia chips that the US has banned from sale to China, Bloomberg and Reuters reported on Jan 31, citing people familiar with the matter.

Industry watchers tell The Straits Times that Chinese tech companies could have acquired such chips through a combination of methods such as by procuring them through middlemen, or by training their models at data centres rented in other countries besides Singapore.

These data centres use legally obtained Nvidia chips.

ST has contacted Singapore’s Ministry of Trade and Industry for comments.

Mr Howard Lutnick, who is expected to enforce chip trade restrictions as the incoming US Commerce Secretary, said on Jan 29 that DeepSeek had “found their ways around” US export controls on Nvidia chips. 

At the same time, Singapore was singled out by the top Democratic and Republican lawmakers on a China-focused panel in the US House of Representatives in a Jan 29 letter on the chip issue to National Security Adviser Mike Waltz. 

“Countries like Singapore should be subject to strict licensing requirements absent a willingness to crack down” on shipments to China, Representatives John Moolenaar and Raja Krishnamoorthi wrote.

Nvidia’s latest financial results showed that 22 per cent of its third-quarter billings were to Singapore.

This makes the Republic the biggest buyer of its chips after the US and has fuelled speculation that some of these chips were somehow swept up by Chinese companies.

An Nvidia spokesperson clarified on Jan 29 that its revenue from Singapore does not suggest a diversion of the chips to China.

The spokesperson added that while the transactions were billed to customers in Singapore, the chips were mostly shipped to places other than Singapore and “shipments to Singapore were insignificant”. 

Ms Selena Ling, chief economist at OCBC Bank, said: “Singapore is a regional financial and trading hub with significant high-end manufacturing investments. Since many multinational corporations have their regional headquarters or treasury centres here, it is not inconceivable that billings are done here.” 

Singapore’s semiconductor sector is its largest manufacturing segment, contributing about 8 per cent to the Republic’s gross domestic product and providing jobs to tens of thousands of Singaporeans.

Much is at stake if the US were to clamp down on Singapore’s access to chips. 

“The US is, of course, free to scrutinise anyone it wishes. Singapore’s practice has always been scrupulously within international law. But the extent and reach of this current scrutiny suggests that no one, no matter how careful, will be free from US suspicion,” said Professor Danny Quah, dean of the Lee Kuan Yew School of Public Policy.

“There is a creeping reach here, and a slippery slope to extending legality considerations to all kinds of controls... and will end with the US (building) a fortress mentality, against everyone else in the world,” he said.

Mr Alex Capri, a senior lecturer at NUS Business School, explained the concerns viewed from the US perspective.

“The influx of Nvidia chips into Singapore has spawned a thriving black market,” he said.

He added that, in 2024, an Nvidia H100 chip – the most advanced graphics processing unit (GPU) chip made by Nvidia for AI applications – on the black market could sell for $100,000, three to four times the normal rate. 

He said that these chips are bought from a network of middlemen functioning as programmers, app developers, researchers and gamers. Although the chips are bought in small numbers, they form a steady supply as an aggregate.

Besides buying chips through third parties, Chinese tech companies can also get around US export controls by renting cloud computing space and data centres in other countries, said Mr Capri, who is the author of the book Techno-Nationalism: How It’s Reshaping Trade, Geopolitics And Society.

He pointed out that Chinese companies could be doing the training of their AI models through corporate entities, research institutions and universities in other countries, not just in Singapore.

“This allows them to indirectly train and develop their own cognitive AI models by using someone else’s legally obtained Nvidia chips,” he said.

Singapore is a hub for data centres. Major operators include Singtel, Equinix, Meta, Google and Amazon Web Services.

The data centres generally provide a host of legitimate services, which are in line with the Singapore Government’s push to develop a high-tech manufacturing, financial and logistics hub. 

Dr Shashi Jayakumar, executive director of consulting firm SJK Geostrategic Advisory, expects the US to impose further controls on countries, not just on Singapore, in a move to tighten what the US sees as existing loopholes.

He said the US could tier such controls, like the recently unveiled AI Diffusion Framework, in which nations perceived as trustworthy are restricted the least in their access to US advanced AI chips.

He also sounded a note of caution on the US possibly viewing Singapore as a conduit for circumventing export controls.

“If there is a genuine national security concern, facts and details should be provided. This is better than grandstanding,” he said.