Malaysia walks back from Huawei deal due to US pressure

Malaysia’s government has reversed its plan to launch a nationwide AI system powered by Huawei chips only a day after touting the project.

The sudden reversal shows how the Southeast Asian nation is caught between the United States and China in the struggle to dominate AI hardware.

Deputy Communications Minister Teo Nie Ching told an industry forum that Malaysia would “activate” Huawei Ascend GPU servers “at national scale.”

Her remarks suggested that the government aimed to deploy 3,000 of the Chinese company’s machines by 2026. She added that Chinese startup DeepSeek would open one of its AI models for Malaysian users.

The announcement reached Washington within hours. “As I’ve been warning, the full Chinese stack is here,” David Sacks posted on X.

He argued that scrapping the Biden-era Diffusion Rule was “just in time,” because those rules had slowed, but not stopped, Huawei’s advance.

As I’ve been warning, the full Chinese stack is here. We rescinded the Biden Diffusion Rule just in time. The American AI stack needs to be unleashed to compete. https://t.co/NiA6sUz0ug

— David Sacks (@DavidSacks) May 20, 2025

Teo’s office has now withdrawn the statement

On Tuesday, Teo’s office withdrew her statement without explanation. It did not say whether the plan would proceed. A Huawei spokesperson also said no Ascend chips had been sold in Malaysia, and no government order existed.

The climb-down followed confusion over U.S. export rules. This month, the Commerce Department issued, then revised, guidance warning that use of Huawei Ascend processors “anywhere in the world” could breach American export controls. After protests from Beijing, officials dropped the worldwide wording but kept the main warning.

Malaysia now stands as an early test case for what Trump aides call “AI diplomacy.” The idea, championed by Sacks, is to push U.S.-made processors into overseas data centers, under security safeguards, so governments will not choose Chinese suppliers. Officials argue the window is shrinking because Huawei is racing to challenge market leader Nvidia.

At the same time, Washington is tightening enforcement against illegal re-exports of Nvidia’s most powerful chips to China. Malaysia is on that watch list.

Huawei is central to Beijing’s AI efforts

Huawei has been central to Beijing’s efforts since its Mate 60 Pro smartphone in 2023, which showed it could build advanced processors despite U.S. sanctions. The company has since moved into electric cars and AI, producing the Ascend line of GPUs. Analysts say the chips, mainly sold inside China, are strong enough to run commercial AI services that cannot access Nvidia hardware.

Even Nvidia chief executive Jensen Huang has called Huawei “one of the world’s most formidable technology companies” and said China is “right behind” the United States in the AI race.

The competition intensified last week when President Donald Trump toured the Middle East. His administration announced preliminary deals to supply the United Arab Emirates and Saudi Arabia with tens of thousands—and possibly more than a million—premium chips from Nvidia and Advanced Micro Devices.

Some lawmakers fear Beijing could benefit through its regional ties, while others warn that a planned UAE data hub might drain top-level research and engineering jobs from the United States.

Officials are rewriting Biden’s AI diffusion framework

While officials negotiate those Gulf deals, they are rewriting the AI diffusion framework introduced by President Joe Biden. The Biden rules expanded earlier China-focused bans to many more countries, including Malaysia, and imposed national caps on sales of advanced chips. One provision barred a U.S. cloud provider from placing more than seven percent of its total capacity in any single country outside the United States and a small group of allies. Oracle’s planned Malaysian cluster would have exceeded that ceiling.

Bloomberg News has reported that the Trump rewrite will add specific controls on countries suspected of diverting chips to China, including Malaysia. U.S. officials pressed Kuala Lumpur earlier this year to curb trans-shipment. The nation also appears in a Singapore court case, where three men are charged with disguising the end user of AI servers that may hold restricted Nvidia parts. Malaysian authorities say they are investigating.

Surging shipments of GPUs from Taiwan to Malaysia reflect that risk. Rising exports of graphics processors from Taiwan to Malaysia add to Washington’s concerns. Analysts see the trade as a sign that some high-end U.S. silicon may be taking indirect routes to China.

As for Malaysia, the country welcomes Chinese investment yet hosts major U.S. tech firms and wants to brand itself as a neutral hub. In 24 hours, it moved from promoting a Huawei-based national AI plan to distancing itself from the idea, leaving the project’s fate unclear.