China’s major technology companies are hurriedly establishing data centers in Malaysia, attracted by the country’s affordable power and availability of advanced semiconductors.
Nestled near a slender road in the countryside of Malaysia, an extensive complex of structures rises over the nearby oil palm fields, bordered by arrays of solar panels.
The 275-acre (111-hectare) property developed by the local group YTL Corporation houses numerous data centers aimed at meeting the surge in demand for computational resources within the Southeast Asian country.
Malaysia is quickly becoming a crucial battleground in the worldwide computing competition, with major tech companies from both the West and China hastening to construct data centers to support their developing AI systems.
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By the close of 2025, worldwide demand for computational resources is forecasted to surge tenfold compared to 2023 levels, with over 40 percent attributed to the Asia-Pacific region, according to predictions made by research firm IDC.
A significant number of these additional servers are gathered in Malaysia, turning the nation into an attractive destination for technology firms from China.
Analysts noted that for Chinese companies, Malaysia presents a compelling combination of benefits, such as amicable ties with China, affordable energy prices, and increased availability of advanced semiconductors that aren’t accessible in China because of U.S. export restrictions.
“Chinese firms form the main client base for data centers in Malaysia and other parts of Southeast Asia,” stated Joe Gao, a board member at IBuffett Investment Management, an investment company focused on Chinese artificial intelligence enterprises aimed at the Southeast Asian market.
In recent years, computing centers have proliferated throughout Malaysia. By 2024, the nation was home to 54 data centers, boasting a combined capability of 504.9 megawatts—almost twice as much as in 2021, reports the Malaysian technology industry group PIKOM.
This capability is expected to nearly triple when YTL’s massive new complex becomes operational. The extensive data center campus will ultimately reach a capacity of 605 megawatts, as stated by YTL to the Post, with initial phases scheduled for completion in May.
“By the time this AI revolution arrived, we understood that data centers would truly soar,” stated Yeoh Keong Hann, a top official at YTL, during an interview held at the company’s modern high-rise office in Kuala Lumpur.
Malaysia found itself in a fortunate situation with ample resources such as energy, water, land, and skilled manpower to ignite this emerging sector of development.
Over the last several years, Malaysia has slowly surpassed neighboring Singapore to become the preferred location for new data centers in the region.
A pioneer in this field, Singapore ultimately encountered significant stress on its limited land, water, and energy resources due to these facilities. In 2019, the city-state implemented a halt on new data center initiatives as it sought ways to align the industry with its environmental objectives.
However, Malaysia welcomed the sector, and it swiftly started drawing investments from Chinese technology firms eyeing the rapidly expanding market in Southeast Asia.
During the latter part of the 2010s, Alibaba Cloud—a subsidiary of the massive Chinese technology corporation Alibaba Group Holding—established a data center in Malaysia aimed at supporting local businesses utilizing their cloud computing solutions. Additionally, Alibaba owns the South China Morning Post.
In 2022, ByteDance, the Beijing-based internet firm behind TikTok, inaugurated the initial stage of a data center campus in Johor, a southern Malaysian state. This facility spans across more than 15 hectares and comprises three structures.
Currently, as per Gao, tens of thousands of Chinese businesses are utilizing data centers located in Malaysia.
Often, these Chinese companies invest in offshored infrastructure for storing data produced by their international social media networks, short video services, and online marketplaces.
For instance, numerous Chinese companies have entered Southeast Asia’s e-commerce sector – expected to double in value by 2030 – with platforms such as Pinduoduo’s Temu, Alibaba’s Lazada, and ByteDance’s TikTok Shop.
As stated by Yeoh, YTL anticipates that their data center park will draw numerous clients aiming to “consolidate Southeast Asian demand as one.”
However, the true revolution has come from the emergence of generative AI, leading to a significant increase in the requirement for data centers.
According to Alex Liew, who chairs the Malaysian technology trade body PIKOM, Chinese firms are currently focusing their investment efforts primarily on data centers for developing AI models and retaining the data produced by these systems.
Asianewbie stated, ‘AI is hugely popular in China,’ which has drawn many local businesses into this field.
China’s artificial intelligence firms find Malaysia appealing due to lower operational expenses; data centers cost approximately 30 percent less to operate compared to those in Singapore, as stated by Liew. Additionally, the country benefits from easy access to microchips designed in the United States.
“Malaysia remains a legal destination for procuring high-end chips,” Gao said. “Despite certain quantity restrictions, Chinese companies can still access computing power resources through local channels to support AI model training, smart manufacturing and the Internet of Things.”
Gao also pointed out that there is substantial potential for increased demand for computing power in Southeast Asia, as the AI sector progresses and new areas such as smart home gadgets, drones, self-driving technology, and electric vehicles gain momentum in the area.
Nevertheless, this increase in Chinese demand also poses risks for Malaysia. The primary concern is geopolitical instability—the chance that Malaysia might become entangled in the tensions between the United States and China over technology.
Gao suggested that the US might implement more stringent “Know Your Customer” rules, mandating that data center clients use their genuine identities and reveal their ultimate beneficiaries, or possibly prevent Southeast Asian data centers from offering computational support to Chinese AI models.
Should this occur, it might significantly impair the capacity of Malaysia’s emerging data centers to turn a profit.
“The domestic markets of Malaysia, Vietnam and Thailand still have limited demand for such big high-end computing power investment, making Chinese enterprises a crucial customer base for Southeast Asian data centres,” Gao said.
However, as an increasing number of data centers in Southeast Asia start using chips manufactured in China, the effect of US export restrictions will likely diminish over time, Gao suggests.
He stated, ‘This goes beyond just being a trend—it signifies real economic advantages.’
At the same time, the surge is leading to environmental problems that might prove difficult to resolve.
The slowdown experienced by Singapore appears to be extending to Malaysia as well; Johor has started turning down certain data center proposals, arguing that these initiatives would place an undue strain on the area’s resources.
Farlina Said, a senior analyst from the Institute of Strategic & International Studies think tank in Malaysia, suggested that data storage might lead to issues unless the infrastructure is fueled by sustainable energy sources. She noted that Malaysia aims to reduce its carbon emissions by 2030.
She stated that while Malaysia desires this development, there are also individuals who question whether the country’s current resource situation is suitable for hosting such data centers.
Although Malaysia boasts abundant water resources for cooling high-density data centers, the nation is not particularly well-suited for accommodating such facilities, according to Liew.
The difficulty we face in Malaysia is due to our climate,” he stated. “It’s consistently warm here. Unlike some nations that utilize wind cooling systems, water is our sole choice.
Additional reporting by He Huifeng
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The article initially appeared on the South China Morning Post (www.scmp.com), which is the premier source for news coverage of China and Asia.
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