Malaysia reins in data centre growth, complicating China's AI chip access

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By Eduardo Baptista, Ashley Tang and Jun Yuan Yong Malaysia, a hotspot for data centres, is reining in the pace of expansion in a move industry insiders and analysts expect will hinder China's efforts to gain access to powerful chips that are crucial to improving its artificial intelligence capabilities.The Southeast Asian country has drawn in data centre investments from U.S. technology giants like Microsoft NASDAQ:MSFT, Amazon NASDAQ:AMZN, Alphabet's NASDAQ:GOOG Google and their Chinese counterparts Tencent HKEX:700, Huawei and Alibaba NYSE:BABA in recent years, spurred by cheap land and electricity costs and robust local AI demand prospects.More than two-thirds of data centre capacity under construction in Southeast Asia's five main growth markets has been committed in Malaysia, according to data centre consultancy DC Byte. Spillover from more expensive Singapore has driven companies to commit to more data centres in the neighbouring Malaysian state of Johor.But the data centre boom has begun to slow as Malaysia grapples with power grid capacity and water resource constraints and pressure from Washington to not allow Chinese firms to use the region as a backdoor to access U.S.-made AI chips that are under export controls.Malaysia, China's largest trading partner in Southeast Asia, announced in July it was requiring permits for all exports, trans-shipments and transits of U.S.-made high-performance chips, such as those made by Nvidia NASDAQ:NVDA.Chinese-made replacements for the U.S. chips are still subpar alternatives for the sustainment and development of cutting-edge Chinese AI models and applications that can compete with their U.S. rivals. The new restrictions leave regulatory wriggle room for Chinese data centres to import U.S. chips for in-country use. However, scrutiny on these projects is bound to increase, experts say, as Malaysia tries to finalise a trade deal with the United States. The U.S. Commerce Department has raised concerns that data centres outside China could purchase AI chips to train AI models in China, including to support military uses, said Collmann Griffin, a lawyer at Miller & Chevalier who previously served as a U.S. government sanctions policy adviser.The U.S. Commerce Department did not respond to a request for comment. 'AI BELT AND ROAD' The overseas push by China began soon after it released a three-year action plan for ...

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