Inner Mongolia city becomes major hub for Chinese AI data centers amid infrastructure push

Ulanqab, a city in Inner Mongolia with a population of about 1.5 million, has emerged as a critical hub for AI data centers in China, attracting nearly 100 facilities 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% of these commitments announced in the past year alone, according to a Goldman Sachs research note. This makes Ulanqab one of the fastest-growing compute clusters in Asia.

The city’s appeal stems from its high elevation, cold winters, and proximity to Beijing, which reduces cooling costs and latency for data transmission. Electricity in Inner Mongolia is among the cheapest in China, driven by abundant coal and growth in wind and solar energy. Unlike in previous years, Chinese AI companies—including DeepSeek, ByteDance, Alibaba, and Xiaohongshu—are now investing directly in their own data center infrastructure rather than relying solely on cloud providers.

The rapid expansion has introduced environmental challenges, particularly water scarcity. Ulanqab receives roughly 14 inches of rain annually, similar to Denver, and local authorities have already imposed nighttime water restrictions to manage demand. While data centers require less water in winter, the new infrastructure could strain the region’s limited resources.

Ulanqab’s data center boom is part of a broader national strategy. In 2021, the Chinese government designated the region as a key site for the “Eastern Data, Western Compute” initiative, which aims to build data centers in western China to balance regional development. Initially, these facilities faced high latency for real-time applications, but the rise of AI model training—less sensitive to latency—has revitalized their utility. Dedicated fiber optic cables built in 2017 and 2019 reduced average latency to less than five milliseconds, enabling real-time AI inference.

Despite ambitions to power data centers with renewables, coal remains a significant energy source in Ulanqab, accounting for 37% of electricity. While the region is transitioning to wind and solar, experts caution that the shift will take time. Envision, a major Chinese wind turbine manufacturer, announced plans to build a 2-gigawatt AI data center in Ulanqab directly connected to its clean power supply, but the broader transition’s pace and extent remain uncertain.