Malaysia's move to rein in data center growth is expected to hinder China's access to powerful chips crucial for advancing its artificial intelligence capabilities. The country has become a hotspot for data centers, attracting investments from tech giants like Microsoft, Amazon, Google, Tencent, Huawei, and Alibaba. However, the Malaysian government's new restrictions require permits for exports, trans-shipments, and transits of U.S.-made high-performance chips, such as Nvidia's.
This development is likely driven by pressure from Washington to prevent Chinese firms from using Malaysia as a backdoor to access U.S.-made AI chips under export controls. Chinese-made replacements for U.S. chips are still subpar, making it challenging for China to develop cutting-edge AI models and applications that can compete with their U.S. counterparts.
Johor has emerged as Malaysia's leading data center investment hub, with 42 projects worth $39.08 billion approved as of the second quarter of 2025. Its proximity to Singapore provides lower-latency connections to the city-state's data centers, making it an attractive location for data center operators like GDS Holdings.
As Malaysia tries to finalize a trade deal with the United States, scrutiny on data center projects is expected to increase. This may lead to more stringent regulations and oversight, potentially affecting China's AI ambitions. The move highlights the complex geopolitics surrounding AI development and the challenges China faces in accessing advanced technology.
