Alibaba and Tencent shares fell sharply after reports that the US Commerce Department is finalizing rules to block Chinese AI firms from remotely accessing advanced chips through overseas data centers. Alibaba dropped 5% in Hong Kong trading on Thursday, while Tencent slipped 1.5%. The Information first reported that the proposed measure targets a loophole that Chinese companies use to rent NVIDIA GPU compute from facilities in Southeast Asia.
The restrictions aim to expand existing semiconductor export controls to seven additional countries, including Malaysia, Singapore, and Thailand.
Currently, the US bans direct sales of advanced NVIDIA processors to China. However, Chinese AI companies found a workaround by renting computing power remotely through data centers in nearby countries that lack equivalent restrictions. ByteDance, Alibaba, and Tencent have all faced accusations of accessing NVIDIA hardware through data centers in Thailand, Malaysia, Japan, and other locations. Because the chips never physically enter China, the existing export control framework does not cover this arrangement.
The proposed rule would change that by treating remote compute access the same as physical chip transfers. Commerce Department officials plan to announce the restrictions this month, according to the report. However, significant legal questions remain about enforcement. Attorneys at Baker McKenzie told the media that the Commerce Department lacks statutory authority under current law to regulate remote computing access. The department has traditionally controlled the transportation of physical goods, not cloud services.
Congress attempted to close this gap earlier this year. The House passed the Remote Access Security Act in January with overwhelming bipartisan support at 369 to 22. That bill gives the Bureau of Industry and Security explicit authority over remote access to export-controlled items. Senate action on the legislation remains pending.
For Southeast Asian data center markets, the implications are significant. Oracle and other US companies have invested heavily in Malaysian data centers. Chip shipments to Malaysia surged in recent months as Chinese firms rushed to secure access before anticipated restrictions. In addition, Malaysia recently implemented its own restrictions on data center expansion to balance US and Chinese interests.
The announcement also deepens pressure on NVIDIA during an already turbulent period. The company faces a board crisis over CEO Jensen Huang’s personal scandals, congressional scrutiny over its China-related business, and now the prospect of losing additional revenue streams through third-country data centers.
