China's AI Boom Takes Shape in Inner Mongolia
Chinese companies are building data centers in Ulanqab, Inner Mongolia, to take advantage of the region's cheap electricity and proximity to Beijing.
The city of Ulanqab in Inner Mongolia is experiencing a surge in data center construction, with nearly 100 centers opened or under construction since 2016. Chinese companies have pledged to build projects with a combined estimated capacity of 12.5 gigawatts in the city, with over 70 percent of the total commitments announced in the last year.
A Hub for AI
Chinese companies are flocking to Ulanqab for several reasons. The city's high elevation and long, cold winters mean that 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. The most enticing factor, however, 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.
| Company | Estimated Capacity |
|---|---|
| Chinese companies | 12.5 gigawatts |
| OpenAI's Stargate Project | 10 gigawatts |
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.
A Water Crisis Looms
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. 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.
A Regional Hub
Inner Mongolia has been a data center hot spot for at least a decade, long before the current AI boom. Huawei built its first data center 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.
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.
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.
