Malaysia has imposed stricter controls on its data centre expansion to address environmental constraints and respond to political pressure from the U.S. amid rising global tensions over AI chip technology. The move could complicate Chinese firms’ access to U.S.-made high-performance chips as regulatory scrutiny intensifies.
New permit rules for data centres
Authorities in Johor, a major data centre hub, have begun demanding detailed permits for new projects, citing worries over electricity, water usage, and sustainability. Around 30% of new data centre applications have been rejected under the new regime. Observers see this as part of Malaysia balancing its role in the global AI supply chain with domestic infrastructure limits.
Impact on China and regional players
China’s firms, which have been investing heavily in Southeast Asia under the “AI Belt and Road” vision, are among the most affected. With tighter oversight on chip exports and stricter requirements for technology infrastructure, China’s access to certain high-end AI chips may face delays or restrictions. At the same time, other regional players like Singapore and local Malaysian companies may benefit from increased demand for compliant infrastructure.
Arm ramps up investment in Southeast Asia semiconductor space
British chip-designer Arm has outlined a $250 million partnership with Malaysia aimed at fostering local semiconductor capacity, especially for AI applications. The agreement includes licensing deals, technical support, and a push for “Made in Malaysia” AI chips. Arm also sees growing opportunity in neighbouring markets such as Singapore, where demand for AI-ready hardware and cloud infrastructure remains strong.
Indonesia lays out its AI roadmap to attract foreign investors
Indonesia is preparing to publish its first comprehensive national AI strategy. The roadmap aims to clarify investment pathways, strengthen infrastructure (particularly in compute and chip capacity), and accelerate adoption of AI in sectors such as agriculture and health. A proposed sovereign AI fund has also been discussed as a means to channel capital into AI development. The ambition is for Indonesia to emerge as a regional hub in the AI and semiconductor ecosystem.
Regional cooperation on governance and standards
At the ASEAN AI Malaysia Summit 2025, ministers and officials from multiple Southeast Asian states urged stronger collaboration on AI standards and frameworks for cross-border data governance. The goal is to harmonise rules, close the gap in regulatory readiness, and build trust in AI systems across countries with varying digital maturity. This reflects concerns about data privacy, misinformation, and equitable AI growth.
Economic implications and growth potential
Reports estimate that AI adoption could boost Southeast Asia’s GDP by up to 13-18% by 2030—equivalent to almost US$1 trillion—driven by productivity gains in sectors like retail, banking, agriculture, and public services. GenAI and AI agent deployment are expected to expand rapidly among businesses in the coming years.
Looking ahead
As nations in Southeast Asia compete to position themselves in the global AI race, issues of regulation, infrastructure capacity, and international partnerships will become even more critical. Policy decisions made now—around data governance, environmental constraints, investment incentives, and standards—may determine which countries emerge as regional leaders.
Newshub Editorial, 12 September 2025
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