China builds massive AI data centers in rural regions to fuel computing power race

The Unlikely Place at the Center of China's AI Boom

Travel just two hours west of Beijing by train, and you'll find yourself surrounded by the rolling grasslands and ancient cinder cones of Inner Mongolia. This vast, arid land has long been China's capital of sheep farming and coal mining, but over the last few years, it has become the hottest place in the country to build an AI data center. In Ulanqab, a city in Inner Mongolia home to about 1.5 million people, nearly 100 data centers have been opened or begun construction since 2016. Chinese companies have pledged to build projects with a combined estimated capacity of 12.5 gigawatts in the city, and over 70 percent of the total commitments have been announced in just the last year, making it one of the fastest growing compute clusters in Asia, according to a research note published by Goldman Sachs last week. For comparison, OpenAI's $500 billion Stargate Project is set to reach only 10 gigawatts of total capacity when it's complete. Chinese companies are flocking to Ulanqab for a number of reasons. The city sits at high elevation on the Inner Mongolian Plateau and has long, cold winters, which means data centers there don't need to use as much energy to stay cool. It's also relatively close to Beijing, so data can be transmitted to China's populous regions with minimum latency. But the most enticing factor has to do with costs. Electricity is cheaper in Inner Mongolia than almost anywhere else in China, driven by both the strong growth of wind and solar energy and an abundant supply of coal. What's also interesting is who is building these data centers. For the first time, Chinese AI companies are making big investments in their own infrastructure, rather than renting compute from cloud companies. DeepSeek is reportedly building a massive AI data center in Ulanqab, as are ByteDance, Alibaba, and Xiaohongshu. For years, Chinese AI companies have spent far less on building physical infrastructure than their American peers, despite developing a number of popular AI models with impressive capabilities. The Ulanqab data center boom signals that now they are finally starting to catch up. There's just one problem: finding enough water. Ulanqab is about as dry as Denver, getting only roughly 14 inches of rain each year. The local government is already struggling to provide enough water to meet resident demand -- before many of the planned data center projects are even up and running. Last month, the local water company in Ulanqab was forced to turn off several waterworks for seven hours each night to mitigate peak demand. The data centers being built in the city will need less water in the winter -- weather data from the local government of Ulanqab shows they only require additional water for cooling during two months out of the year -- but all of the new infrastructure could still pose a significant environmental challenge for the region. The Boonies Inner Mongolia has been a data center hot spot for at least a decade, long before the current AI boom. Huawei built its first one in Ulanqab in 2016, and Apple followed suit three years later. In 2021, the area was designated as one of the main hubs of a country-wide government project dubbed "Eastern Data, Western Compute," which aims to build data centers in the Western hinterlands of China. There was one major drawback, though. Because they are located far from China's populous eastern coast, these data centers initially faced high latency rates when transferring data to the majority of users. As a result, they were initially largely relegated to backup storage -- until AI gave them a new purpose. "With the rise of AI in 2022, there was the realization that actually, those remote data centers could be well-utilized for model training," says Andrew Stokols, a professor at Singapore Management University who studies China's compute infrastructure. A training run for an AI model can take months and doesn't require much real-time tinkering, so latency is less of an issue. Relatively speaking, Ulanqab is also not really that far away. Inner Mongolia is much closer to Beijing and other major metropolitan areas in China than any Western data center hub is. And it's now connected by two dedicated fiber optics cables built in 2017 and 2019 that reduced average latency speeds to less than five milliseconds, fast enough to support real-time data exchanges like AI inference. Compared to other data center hubs in China, Ulanqab's growth seems to have been driven more by commercial demand than government-led investment, Stokols says. As Chinese AI startups like DeepSeek, Moonshot AI, and Zhiput AI have begun attracting more paying users at home, they have found a viable business case for inference data centers close enough to serve them without excessive latency. Powered by Renewables The Chinese government is excited about building data centers in Inner Mongolia for another reason: It could help absorb the country's excess capacity of renewable energy. Damien Ma, director of Carnegie China, a Singapore-based research center, says there's a positive correlation between regions in China with the most unused renewable energy and those that have built the most data centers. In the eyes of the government, this is a win-win strategy. China can catch up to pace of data center construction in the US, while simultaneously increasing demand for renewable energy. So it should come as no surprise that Envision, one of the largest Chinese manufacturers of wind turbines, announced this month that it will build a 2 gigawatt AI data center in Ulanqab connected directly to the company's own clean power supply. But experts caution that looking at AI data centers and renewable energy in China as a match made in heaven is too simple of a story. Stokols found in his research that about 37 percent of electricity in Ulanqab still comes from coal. And since data centers need to run around the clock, operators have traditionally favored fossil fuels for their reliability. "Inner Mongolia has long been the West Virginia of China. It's a coal country," says Ma. The region is now racing to replace coal with wind and solar, but it remains unclear how fast that transition will happen or how far it will go. For now, the data centers popping up in China's remote highlands will have to keep relying on coal to some extent. But "in three years, maybe it will be completely powered by renewables," Ma says. This is an edition of Zeyi Yang and Louise Matsakis' Made in China newsletter. Read previous newsletters here.

China shifting massive AI data center complexes to rural provinces to tap surplus energy -- 'Eastern Data, Western Computing' strategy has Chinese tech giants Huawei and Tencent building AI infrastructure Guizhou

These data centers are popping up left and right in rural China. Beijing has been encouraging its tech giants to build data centers across the country as the central government believes that computing power, especially in the age of AI, correlates to national power. Because of this, many Chinese companies like Huawei and Tencent have been actively building AI infrastructure in rural provinces, like Guizhou province, which is located more than 500 miles to the northwest of Shenzhen. According to Tech Xplore, dozens of these facilities have been constructed in the area in recent years, with more on the way. Unlike the U.S., where data centers face increasingly tough opposition, these build-outs are seemingly approved with relative ease, and the people living around them apparently appreciate the changes that the data centers and related infrastructure brought to the area. "It used to be a barren mountain, but since the area has developed, transportation has become more convenient, trade has picked up, business opportunities have emerged," one shopkeeper told the publication. Another local, Li Xixiu, praised the development of the main road as tech companies entered the area, saying that it "boosted the economy of the area," and that there have been more local opportunities since then. "All the villagers in our neighborhood now find jobs nearby, unlike before, when they had to go to other places," said Li. Still, it must be noted that Beijing places tight control on objections and protests, and that ordinary people cannot just object to policies set by the central government. One of the reasons behind American opposition to data centers is the egregious electricity price increases they've brought on the average user. The PJM Interconnection region, the biggest power region in the United States, has seen a massive 76% increase in electrical costs because of the burden that data centers have put on the grid. Aside from that, it's estimated that 20% of power generated in the U.S., amounting to 194GW, will be allocated to data centers by 2035. By comparison, analysts say China has a massive advantage in power generation, with several western Chinese provinces offering steep discounts on their electricity bills for AI companies that use Chinese chips. Furthermore, because the state subsidizes the power costs of residential and agricultural users, the average citizen does not worry that a nearby data center would cause their utility costs to increase. These rural provinces also have large swaths of land allocated for renewable energy production, with energy overproduction becoming a problem for some operators. So, the construction of these power-hungry buildings actually helps solve the problem by using up surplus power instead of letting it go to waste. The availability of land and power in these western provinces makes it more attractive and affordable to put up data centers, compared to areas east of the country which are largely built up and have higher population concentrations. Still, this development is not without issue. The Research Institute for Democracy, Society, and Emerging Technology (DSET) in Taiwan said in an email to AFP that while Guizhou has seen an average GDP growth of 7.4% over the past 10 years, wages didn't increase as much and lagged behind much of the rest of the nation. "This contrast suggests that while data centers drive heavy investment in land and equipment, their impact on boosting local per capita income remains limited," DSET researchers Cartus Bo-Xiang You and Angela Glowacki wrote. Follow Tom's Hardware on Google News, or add us as a preferred source, to get our latest news, analysis, & reviews in your feeds.

China goes rural with data centres in quest to power AI

Guian New Area (China) (AFP) - In China's hilly Guizhou province, a cluster of European-style buildings complete with clock tower and multi-arched bridge emits a low, permanent hum -- a clue to its unexpected identity as tech giant Huawei's largest data centre. They are part of a government strategy that has seen much of the digital infrastructure for breakneck AI development across China's eastern seaboard established in the country's less populated, rural west. The build-out is ongoing. China is on course to nearly double its data centre capacity within the next five years, as a tech race with the United States intensifies and countries everywhere try to swerve a computing crunch that could stymie AI expansion. The projects have transformed some places -- such as Guian New Area, where the Huawei data centre and others are located. "It used to be a barren mountain, but since the area has developed, transportation has become more convenient, trade has picked up, business opportunities have emerged," local shopkeeper Shu Peihua said. When AFP visited last month, street vendors were catering to data centre workers on their lunchbreak near a roadside banner calling for "promoting high-quality development", a government tech policy catchphrase. In Europe and the United States, data centre construction has often been met with resistance from local communities citing concerns around energy prices, as well as environmental issues such as water usage and noise. Dissent in China is tightly controlled, however, especially around central government policy. Still, Guian residents who spoke to AFP were positive about the changes to their area. A vendor selling savoury pancakes, who did not give his name, said two universities had been established since the facilities were built. Another local, Li Xixiu, said the main road had been developed because of the centres, which in general had "really boosted the economy of this entire area". "All the villagers in our neighbourhood now find jobs nearby, unlike before, when they had to go to other places," Li said. East to west In 2021, the government gave its strategy a name: "Eastern Data Western Computing". The logic of construction in places like Guizhou, with its cooler climates, abundant renewable energy and empty space, is multifaceted. AI processing is extremely energy intensive, and China has demanded that data centres draw 80 percent of their power from renewable sources by the end of this decade. That makes regions like Guizhou and Inner Mongolia, which have massively expanded renewable capacity like solar and wind, ideal for operators looking to meet those commitments, said Simeng Deng, a senior analyst at Rystad Energy. Energy-guzzling server farms could also help solve renewables' issue of curtailment, or the over-production of energy. The data centres "can be an engine to digest or absorb the surplus of renewable power generation", said Deng. Developing previously neglected parts of the countryside is another potential benefit. Despite the enthusiasm of the locals AFP met though, some researchers question the overall economic gains to host regions. Data centres don't necessarily create a "huge spillover effect" on local jobs, said Andrew Stokols from Singapore Management University. "The hope is that you can use data centres as an engine for broader digital development... bringing in industries that will come in around data centres," he said. However, both in China and elsewhere, "immediate benefits have been elusive". 'Limited' economic boost Guizhou has averaged an annual GDP growth rate of 7.4 percent over the past decade, but its wage growth over the same period was second to last nationwide, according to the Taiwan-based Research Institute for Democracy, Society and Emerging Technology (DSET). "This contrast suggests that while data centres drive heavy investment in land and equipment, their impact on boosting local per capita income remains limited," DSET researchers Cartus Bo-Xiang You and Angela Glowacki told AFP by email. Massive investment in infrastructure, coupled with policy incentives to attract data centre builders, have earned Guizhou one of the highest debt burdens in the country. In 2024, Guizhou ranked 30th among Chinese provinces for its debt-to-revenue ratio, according to a DSET report, and 27th for its debt-to-GDP ratio. However, the demand for data processing capacity as countries scramble for technological supremacy means the building will continue. Even before ChatGPT heralded the beginning of the AI boom, Chinese policy documents were "talking about the idea that computing power is correlated with national power", said Stokols. "It's essential for national competitiveness in the age of digital technology... the AI competition has accelerated that."

China data centres: China goes rural with data centres in quest to power AI

In China's hilly Guizhou province, a cluster of European-style buildings complete with clock tower and multi-arched bridge emits a low, permanent hum -- a clue to its unexpected identity as tech giant Huawei's largest data centre. Dozens ofdata centres have been constructed in the southwestern province in recent years. In China's hilly Guizhou province, a cluster of European-style buildings complete with clock tower and multi-arched bridge emits a low, permanent hum -- a clue to its unexpected identity as tech giant Huawei's largest data centre. The town-like complex is unique in design, but not in its placement. Dozens ofdata centres have been constructed in the southwestern province in recent years. They are part of a government strategy that has seen much of the digital infrastructure for breakneck AI development across China's eastern seaboard established in the country's less populated, rural west. The build-out is ongoing. China is on course to nearly double its data centre capacity within the next five years, as a tech race with the United States intensifies and countries everywhere try to swerve a computing crunch that could stymie AI expansion. The projects have transformed some places -- such as Guian New Area, where the Huawei data centre and others are located. "It used to be a barren mountain, but since the area has developed, transportation has become more convenient, trade has picked up, business opportunities have emerged," local shopkeeper Shu Peihua said. When AFP visited last month, street vendors were catering to data centre workers on their lunchbreak near a roadside banner calling for "promoting high-quality development", a government tech policy catchphrase. In Europe and the United States, data centre construction has often been met with resistance from local communities citing concerns around energy prices, as well as environmental issues such as water usage and noise. Dissent in China is tightly controlled, however, especially around central government policy. Still, Guian residents who spoke to AFP were positive about the changes to their area. A vendor selling savoury pancakes, who did not give his name, said two universities had been established since the facilities were built. Another local, Li Xixiu, said the main road had been developed because of the centres, which in general had "really boosted the economy of this entire area". "All the villagers in our neighbourhood now find jobs nearby, unlike before, when they had to go to other places," Li said. - East to west - In 2021, the government gave its strategy a name: "Eastern Data Western Computing". The logic of construction in places like Guizhou, with its cooler climates, abundant renewable energy and empty space, is multifaceted. AI processing is extremely energy intensive, and China has demanded that data centres draw 80 percent of their power from renewable sources by the end of this decade. That makes regions like Guizhou and Inner Mongolia, which have massively expanded renewable capacity like solar and wind, ideal for operators looking to meet those commitments, said Simeng Deng, a senior analyst at Rystad Energy. Energy-guzzling server farms could also help solve renewables' issue of curtailment, or the over-production of energy. The data centres "can be an engine to digest or absorb the surplus of renewable power generation", said Deng. Developing previously neglected parts of the countryside is another potential benefit. Despite the enthusiasm of the locals AFP met though, some researchers question the overall economic gains to host regions. Data centres don't necessarily create a "huge spillover effect" on local jobs, said Andrew Stokols from Singapore Management University. "The hope is that you can use data centres as an engine for broader digital development... bringing in industries that will come in around data centres," he said. However, both in China and elsewhere, "immediate benefits have been elusive". - 'Limited' economic boost - Guizhou has averaged an annual GDP growth rate of 7.4 percent over the past decade, but its wage growth over the same period was second to last nationwide, according to the Taiwan-based Research Institute for Democracy, Society and Emerging Technology (DSET). "This contrast suggests that while data centres drive heavy investment in land and equipment, their impact on boosting local per capita income remains limited," DSET researchers Cartus Bo-Xiang You and Angela Glowacki told AFP by email. Massive investment in infrastructure, coupled with policy incentives to attract data centre builders, have earned Guizhou one of the highest debt burdens in the country. In 2024, Guizhou ranked 30th among Chinese provinces for its debt-to-revenue ratio, according to a DSET report, and 27th for its debt-to-GDP ratio. However, the demand for data processing capacity as countries scramble for technological supremacy means the building will continue. Even before ChatGPT heralded the beginning of the AI boom, Chinese policy documents were "talking about the idea that computing power is correlated with national power", said Stokols. "It's essential for national competitiveness in the age of digital technology... the AI competition has accelerated that."