China's Strategic Stakes in AI Data Centers

China’s rapid build-out of artificial intelligence (AI) data centers represents a fundamental pillar of its national digital and economic strategy. These facilities are more than just technical infrastructure—they are central to Beijing’s ambition to lead in AI, reshape global technological influence, and secure long-term economic and military advantages.

China views data as a strategic resource, akin to oil in the industrial era. Policy at the national and local levels is geared toward acquiring, organizing, and leveraging vast data pools. One example is the creation of coastal “data zones” to attract international data flows that can train and optimize AI models. This ambition reflects a systemic national approach, incorporating industry, academia, and government under a single vision of digital dominance.

Data Centers as Engines of Economic and Military Power

At the heart of China’s AI ambition are super-scale data centers. The Lin-gang Special Area in Shanghai now hosts Asia’s largest AI data center, housing 5,000 cabinets and delivering 3,740 petaflops of computing power. Such capability enables AI processing at a scale previously unattainable, cutting costs and accelerating innovation in fields from biotechnology to rail infrastructure.

These centers are crucial to unlocking AI’s economic potential. Estimates suggest that a 1% improvement in computing power could boost GDP by 1.8 per thousand. They also enable use cases that were once economically prohibitive. For instance, molecular dynamic simulations that once took months now complete in days, enabling faster scientific breakthroughs.

China’s AI Strategy: Goals, Progress, and Global Position

China’s AI strategy, formalized in 2017, sets ambitious goals: by 2030, core AI industries should surpass 1 trillion yuan, with related sectors reaching 10 trillion yuan. To meet these targets, China is investing in AI-specific compute capacity, having installed between 300 to 750 exaflops nationwide—a number that already exceeds prior state planning goals. This surpasses Western expectations and reveals the effectiveness of a government-led industrial policy.

Between 2015 and 2019, China accounted for nearly half of the global growth in AI computing power. A large share of this capacity supports military-civil fusion, a strategy that blurs the line between commercial and defense applications. Some Chinese AI companies are explicitly developing models for military use, such as combat simulation, unmanned systems control, and battlefield analysis.

Global Interconnections and Western Dilemmas

Despite U.S. export controls, China continues to access and integrate foreign technology—including Nvidia chips and Western-developed software—into its data centers. Chinese firms like Huawei, Tencent, and iFlyTech operate overseas AI labs and hire global talent, sustaining their innovation pipelines.

Western governments face mounting challenges in constraining this surge. While entity lists and chip bans slow direct supply, China has proven adept at circumventing sanctions, leveraging shell companies and foreign subsidiaries. A more dynamic and collaborative export control framework—engaging both public and private sectors—is now urgently needed to address not only hardware, but software, services, and people.

Military-Civil Fusion and National Security Concerns

China’s AI infrastructure is deeply intertwined with its defense ambitions. Reports confirm that certain data centers explicitly support military analysis and systems, including unmanned aerial vehicles (UAVs) and combat optimization platforms. These are not speculative uses—Chinese government and military strategy documents openly reference the objective to secure the “commanding heights of AI”.

This integration poses risks that extend beyond the Chinese mainland. There are growing signs that China is building AI infrastructure abroad, suggesting future capabilities could be projected across borders. Such developments demand international scrutiny, especially as they shape new fault lines in global tech competition.

Technology Trends and Cooling Infrastructure

In terms of technical design, China’s data centers have traditionally used air cooling, but are now beginning to adopt direct-to-chip liquid cooling, following trends seen in the U.S. and Europe. As chip density and heat loads increase, this shift is expected to accelerate, reshaping how Chinese AI infrastructure is engineered for performance and efficiency.

One lesser-known but telling indicator of China’s AI data center boom lies in the soaring demand for diesel backup generators. In Nanchang City, a major factory producing these generators is operating at full tilt—turning out eight units per day. Demand from data centers alone makes up 30% of its output, and customers often collect generators as soon as they are completed.

This surge has shortened production cycles from five to three days and pushed prices up by over 10% year-on-year, with top-end units selling for $320,000–$350,000 USD. The market for diesel generators used in Chinese data centers is projected to reach nearly $1.4 billion USD this year—doubling from the previous year. It’s a clear, if niche, reflection of just how rapidly and at what scale China is building its AI infrastructure.