The Southeast Asian nation has drawn in information centre investments from US know-how giants like Microsoft, Amazon, Alphabet’s Google and their Chinese language counterparts Tencent, Huawei and Alibaba in recent times, spurred by low-cost land and electrical energy prices and strong native AI demand prospects.
Greater than two-thirds of information centre capability beneath building in Southeast Asia’s 5 foremost progress markets has been dedicated in Malaysia, in line with information centre consultancy DC Byte. Spillover from costlier Singapore has pushed corporations to decide to extra information centres within the neighbouring Malaysian state of Johor.
However the information centre growth has begun to gradual as Malaysia grapples with energy grid capability and water useful resource constraints and strain from Washington to not enable Chinese language corporations to make use of the area as a backdoor to entry US-made AI chips which are beneath export controls.
Malaysia, China’s largest buying and selling associate in Southeast Asia, introduced in July it was requiring permits for all exports, trans-shipments and transits of US-made high-performance chips, akin to these made by Nvidia.
Chinese language-made replacements for the US chips are nonetheless subpar options for the sustainment and improvement of cutting-edge Chinese language AI fashions and purposes that may compete with their US rivals.
The brand new restrictions go away regulatory wriggle room for Chinese data centres to import US chips for in-country use.
Nevertheless, scrutiny on these tasks is certain to extend, consultants say, as Malaysia tries to finalise a commerce take care of the US.
The US Commerce Division has raised issues that information centres exterior China might buy AI chips to coach AI fashions in China, together with to assist navy makes use of, stated Collmann Griffin, a lawyer at Miller & Chevalier who beforehand served as a US authorities sanctions coverage adviser.
The US Commerce Division didn’t reply to a request for remark.
‘AI belt and highway’
The abroad push by China started quickly after it launched a three-year motion plan for Chinese language information centre operators in 2021, calling on the corporations to increase overseas, particularly in nations signed onto Xi Jinping’s flagship abroad improvement Belt and Highway Initiative, of which Malaysia is a signatory.
On the finish of Xi’s go to to Malaysia in April, the nations launched a joint assertion that pledged rising cooperation on “information linkages”, 5G infrastructure and AI, pointing to the rising political momentum underlying China’s information centre capability enlargement in Malaysia.
GDS Holdings, one among China’s largest information centre operators, two years in the past started working a hyperscale information centre campus in Johor, an enormous venture that’s nonetheless being expanded.
However because the US continues to focus on China’s AI capabilities, GDS has regularly diminished its stake within the Singapore-headquartered subsidiary that managed its abroad information centres and spun it off into an unbiased entity known as DayOne in January.
Lee Ting Han, Johor state’s information centre improvement coordination vice chair, stated Chinese language corporations’ “rebranding” is more likely to be geared toward diversifying their consumer base “as a result of they know very nicely what’s taking place, the commerce stress is transferring.”
On the groundbreaking of DayOne’s first information centre in Singapore in July, CEO Jamie Khoo stated that the corporate at all times meant to separate its enterprise from its Chinese language dad or mum as each corporations function beneath completely different regulatory regimes.
Singapore had a three-year moratorium of latest information centre builds till January 2022 attributable to energy and water constraints, earlier than saying final 12 months that it might unlock simply 300 megawatts (MW) of information centre capability “within the close to time period”.
As of December 2024, Johor had 12 operational information centres with a mixed estimated capability of 369.9 MW and an extra 28 had been deliberate for future improvement, representing an estimated capability of 898.7 MW, in line with a Knight Frank report.
Johor has emerged as Malaysia’s main data centre investment hub with 42 tasks price 164.45 billion ringgit ($39.08 billion) permitted as of the second quarter of 2025 contributing 78.6% of the nation’s operational IT capability, the state’s chief minister stated final month.
Its proximity to Singapore means Johor advantages from lower-latency connections to the city-state’s different information centres.
However Johor has begun to step on the brakes, introducing a vetting committee final 12 months for information centre tasks that rejected about 30% of purposes as of late 2024 for failing to reveal sustainable practices for water and vitality utilization, Lee stated.
The approval fee has gone up as candidates turn out to be extra conversant in the method, he added.
Vivian Wong, a senior analyst at DC Byte, stated Southeast Asian nations like Malaysia had been enticing markets for Chinese language information centre expansions attributable to geographic proximity, comparatively decrease political friction and rising digital infrastructure demand.
“Nevertheless, as Southeast Asia faces elevated scrutiny and tariffs, this will likely doubtlessly reap lesser success when in comparison with earlier years, particularly in markets identified to host Chinese language-backed operations which are additionally focused by the Trump administration,” she stated.
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