2-7-2024 (KUALA LUMPUR) Malaysia’s abundance of affordable land, low construction costs, tax incentives, and proximity to Singapore have positioned the nation as an increasingly attractive destination for Chinese tech firms seeking to establish data centers. Giants like ByteDance, the parent company of TikTok, and GDS, a leading Chinese IT service and data center operator, have already made significant investments in the country, fueling Malaysia’s ambitions to become a leading Southeast Asian hub for handling the vast amounts of data and computing power required by the rapidly advancing field of artificial intelligence (AI).
However, experts warn that any escalation in the ongoing US-China tech and trade war could derail these aspirations, casting a shadow over Malaysia’s plans to move up the value chain from a manufacturing base to a regional AI and data center powerhouse.
Malaysia has already secured billions in funding from American tech titans such as Nvidia, Microsoft, and Amazon Web Services, and is now looking eastward for fresh investments in the data center market. ByteDance, the company behind the wildly popular video-sharing app TikTok, has already established a presence in Malaysia and is eyeing an expansion of its existing data center with an investment of 1.5 billion ringgit (US$317 million), aiming to transform the country into a regional AI hub.
Chinese IT service and data center operator GDS launched its first regional data center in Johor last August, capitalizing on the state’s proximity to the vastly more expensive and space-constrained Singapore.
Experts cite Malaysia’s readily available and inexpensive land, particularly in Johor, which borders Singapore, as a key selling point for the country’s burgeoning data center industry. Malaysia’s Economy Minister, Rafizi Ramli, confirmed the government’s efforts to attract potential Chinese investors interested in entering the Southeast Asian market, stating, “We are looking to expedite Malaysia’s transition from the back-end part of the semiconductor industry to the front end, with integrated-circuit design and data centers.”
Malaysia is already a significant player in the global semiconductor industry, supplying 13 percent of total demand in the assembly, packaging, and testing sector, according to government data. Now, the country is positioning itself as a “non-aligned” sanctuary for businesses as geopolitics increasingly shapes supply-chain decisions.
This trend aligns with the broader push by Silicon Valley giants like Google and Chinese tech conglomerates such as Alibaba to expand their presence in Southeast Asia, a region home to 700 million people and economies collectively worth over US$3.8 trillion. Initiatives such as free zones and the New Industrial Master Plan 2030, which shifts the country’s economic focus towards the digital economy and drives its technology sector up the value chain, have further fueled this expansion.
However, the Singapore-based Hinrich Foundation has cautioned that China’s global digital expansion introduces risks amid escalating US-China geopolitical tensions, with China framing its data challenges as national security issues. In a report published on June 25, the foundation warned that any restrictions on China’s digital activity by the United States were likely to be treated as threats to China’s security by Beijing, potentially ensnaring commercial actors and third-party economies, including those in Southeast Asia, where the US and China compete for influence.
For Malaysia, attracting big tech investments from both China and the West serves as a strategic hedge in an uncertain global landscape, according to Oh Ei Sun, a senior fellow at the Singapore Institute of International Affairs. “It is quite difficult for either contending side to impose sanctions or boycotts on IT products and services from Malaysia, as they do not have many other alternatives to place their investments,” Oh argued.
However, the environmental impact of data centers, which are highly energy-intensive, is an increasingly pressing issue that could undermine the clean energy goals of Southeast Asian nations housing these massive facilities. Tenaga Nasional Berhad (TNB), the sole power provider for Peninsular Malaysia, estimates a growth of up to 130 percent in global electricity consumption by data centers and AI by 2026, accounting for 2 percent of the total global energy demand. In a May report, TNB revealed that it had received more than 70 supply applications from data center customers with a total maximum demand exceeding 11,000 megawatts.
Singapore, which currently hosts over 70 data centers operating at 1.4 gigawatts, has adopted a cautious approach to new data center builds, emphasizing the development of green data centers with lower carbon emissions to support its net-zero targets, following a four-year moratorium on new constructions.
Malaysia-based political risk analyst Adib Zalkapli highlighted the country’s favorable cost structure as an additional attraction for investors, noting the interest from not just Chinese firms but also an Australian data center in Johor. According to Cushman & Wakefield’s recent Asia Pacific Data Centre Construction Cost Guide, land and construction costs in Singapore are among the highest in the region, trailing only China, including Hong Kong. In contrast, land costs in Malaysia’s capital, Kuala Lumpur, are significantly lower at US$1,471 per square meter, compared to over US$20,000 in Singapore, while the cost of constructing a “prestige quality” data center is US$4 million cheaper per megawatt.
