China's Plans to Make AI a Utility

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1:26From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan. Pure opportunity. Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios. Podcasts. Radio. News. Earlier this year, our colleague James Mager took a trip to the middle of the desert in the remote region of Xinjiang, China. Xinjiang is the western third of China, basically.

2:10It borders Mongolia, Kazakhstan, Uzbekistan, and where we went on this trip. It's situated in a river valley. It's got these lovely snow-capped mountains overlooking the town. It really was a stunningly beautiful place, but very hard to get to. James was there on a lead generated by Bloomberg's data journalism team. Met a handful of Chinese companies were building some 40 data centers across the region and planned to power them with tens of thousands of NVIDIA chips, chips that the U.S. banned from being exported to China in 2022. As well, China has criticized the U.S. moves to expand restrictions on its access to semiconductor technologies, saying that they will harm supply chains and the world economy.

2:55They want to build an AI industry that can go head to head with the U.S. Bloomberg Data reporter Andy Lin led the team's investigation. In modern warfare, AI is playing a larger role. So the U.S. is worried about China developing the AI capacity with developing their high-end military as the aim. Since the Biden administration's initial restrictions on advanced AI chips, the U.S. has tightened export controls, putting them at the center of tensions with Beijing. Just last week, Bloomberg learned of plans by the Trump administration to further restrict the shipments of AI chips to Thailand and Malaysia, part of an effort to prevent them from being potentially smuggled into China.

3:46So by building these data centers and build up the computing power, they aim to build a local domestic AI industry that can go head to head with OpenAI, Alphabet, Amazon or Meta in the U.S.

4:04This is The Big Take Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever-shifting region. Today on the show, China's AI ambition rises from the desert.

4:29China is fast becoming a world leader in artificial intelligence. It's one of the top consumers of semiconductors. And as DeepSeq's latest model shows, Chinese companies are hungry to create top-tier AI technology to rival international competitors. But Andy says the U.S. government's export controls have created a real problem for China by limiting its access to NVIDIA's prized semiconductors. NVIDIA is the industrial standard for any AI training operations. So, for example, OpenAI, the most famous AI companies in the world, use NVIDIA chips for training their chat GPT models. And whenever you want to build a sophisticated AI model, you need to use a lot of NVIDIA chips.

5:19So NVIDIA chip is sought after across all the world for all the AI development because every country wants their own AI industry. And he says China's ultimate goal is to have its own source of advanced AI chips, ones that are on par with NVIDIA's offerings. For now, though, NVIDIA's semiconductors are the best product on the market, and Chinese companies are eager to access them. Since the U.S. introduced these export controls, I heard sources in China saying they are having a hard time getting large volumes of NVIDIA chips for their operations. I think this slows China's access to these chips but not stop them from getting them outright.

6:08The U.S. government has no official consensus on how many restricted NVIDIA chips are currently in China. Two senior Biden officials estimated that China had around 25 ,000 chips. But most of the people Bloomberg spoke to say there isn't an agreed-upon estimate. That's why when Andy found documents laying out the volume of NVIDIA chips that companies hoped to obtain for these data centers, he was surprised. Because most of the people I talk to would say that they assume some development of these data centers using NVIDIA chips is ongoing, but not like declaring to the world that they're going to use banned NVIDIA chips in this large volume.

6:53In the fourth quarter of last year, the Chinese government approved a total of 39 data center investment projects in Xinjiang and the neighboring Qinghai province. They spelled out plans to use more than 115 ,000 NVIDIA processors. If you want to compare this scale to what the U.S. have, usually the tech companies there will claim if you have more than 100 ,000 NVIDIA chips in one place, then you're in a place to develop state-of-the-art models which can possibly compete with Gemini, ChadGPT, these kind of models. There's no explanation in the official documents of how companies plan to acquire the banned NVIDIA chips, and it could all be aspirational.

7:39In a response from NVIDIA, the company said that posting a web page about restricted products is not the same as successfully licensing building and operating a data center, and that NVIDIA does not provide any support or repairs for restricted products. In the meantime, the companies listed in the filings, state officials and central government representatives in Beijing, all declined to comment when asked to explain. Still, the building continues in the desert. Most of these data centers are located in a single compound in Yiwu County, set up by the local government in Xinjiang. These data centers house big computers, servers, and other components, and are used to process, store, and distribute data.

8:24And while they might be located far from big cities like Shanghai or Shenzhen, startups in these cities can send their models to the data centers for training and optimization. Theoretically, any company in China can access that computing power. Essentially, you can send a request to the data centers in Xinjiang saying that, hey, we want to use how many chips to train our models in the eastern regions. And then the data centers in Xinjiang will produce a result to you. maybe in a few minutes or even a few seconds. Wow. Yeah, so these are all connected because you don't need to be present at the data center to use the computing power.

9:06Xinjiang is an ideal location for large-scale data centers. Land is cheap and rental costs are low. The region also has cool weather, which helps offset the heat generated by the servers. Most importantly, it's a hub for green energy. On the way to look for the data centers, James Maeger stumbled across miles and miles of renewable energy installations. The desert was just a dusty, rocky plain. And scattered across the desert was just windmill after windmill after solar panel installation after solar panel installation. And then there was also this power generation, which is where the company uses mirrors to concentrate sunlight onto a tower which is filled with molten sodium.

9:51And then that heat that's generated by concentrating all that sunlight is then used to generate electricity. And you can see this like 20, 30 kilometers away because the sunlight is so blinding as it's concentrated onto this tower. This combination of green energy and advanced computing fits in with Beijing's economic push for sustainable development. After the break, what is China's master plan to build these data centers? We zoom in on one company to find out.

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13:13Bloomberg's James Mager spent three days in Xinjiang tracking down the data centers Andy Lin and his team had found on paper. Iwu is pretty remote even in Xinjiang, which is pretty remote in China. To get there, it was a four-hour plane ride from Beijing to the city of Hami. And then from Hami to Iwu is another three-and-a-half, four-hour car ride up into the mountains. Using the data team's coordinates, James was able to locate massive building complexes in the desert, right where Andy said the data centers were being built. There was a lot of construction in EWU, and there was some construction going on up in the area with all the solar panels.

13:56I've never seen a data center before. I mean, this is the first time I've seen a data center, but they look like what I imagine a data center would look like. You have a large building, which is three, four, five stories tall, has almost no windows. They obviously don't need a lot of light. Having a lot of windows is going to make it harder to keep the temperature inside the data center controlled at the proper level. It sounds like they had certainly all the hallmarks of being a data center. Yes. Among all the projects examined in the investigation, one caught the team's attention. It involves a company controlled by Niacor, an energy firm that's partially owned by the state government, based in Tianjin in northern China.

14:37Niacor's main business is supplying solar and wind power. And I asked Andy why a green energy firm of all companies would be building data centers. Yeah, so you don't usually think green energy companies delve into the data center business. But in China, Beijing has been encouraging green energy companies to invest into AI data centers because they want to lower the carbon footprint that will create a win-win. According to the documents Bloomberg found, Niacor plans to build a data center with 625 servers. It is one of the largest projects we found in the batch of the documents. Based on their investment approvals, they need 2 ,000 H100 GPU chips.

15:25That's a lot, because if you imagine one H100 chips cost around$20 ,000, than is a very big amount of money just for a mid-sized green energy company in China. Nyacor is selling its computer power to Infinigence AI, one of the largest AI infrastructure companies in China. The company has raised 1 billion yuan, or almost$140 million in funding, since it was founded in 2023. Nyacor declined to comment and InfineGence AI couldn't be reached for a response. But last year, the CEO of InfineGence AI said in an interview with local media that the goal is to make computing power more accessible to AI companies all across China.

16:15Their CEO said they'd aim to create a computing power system that allows AI developers across the mainland to just log into their system and get all the computing power they want. just like opening a water tap, and then you can get the water you want. Computer power on tap. But in order to make computer power accessible anywhere, anytime, there's an issue that needs to be addressed first. Xinjiang is China's most Western region. Most of the AI companies that need the computing power are based in big cities like Shanghai, far in the east. That's more than 2 ,000 miles apart, about the distance from Chicago to Los Angeles.

17:00Andy says the Chinese government plans to bridge this supply-demand gap by building what they call computing power corridors. You can think about this as the water resource management system in China. They have been moving the water from the southern region to the north region, which is suffering from draft. So they have been moving crucial resources around in the mainland, and now they want to move the computing power. So in some ways, they're thinking of AI computing power like a utility, right? And the computing power corridor would be like the power grid? Yeah, yeah, that's what they are aiming for.

17:38They're building infrastructure like more cables along the corridors so that they can encourage more AI developers to build infrastructure in the Western regions. This is all part of China's plan to dominate in AI. But in order for China to get there, it needs all these things to come together. Its own high-tech chips that can rival NVIDIA's, computer power on tap, and an industry with cutting-edge innovations. And Andy says building such a national network could encourage more Chinese companies to jump into the AI space without needing to build their own data centers. That would help startups come up with more innovations, like DeepSeek did with its chatbot, and ultimately narrow the gap between the U.S.

18:24and China. I think one of the most powerful aspects of this utility for AI computing power is that it will not be controlled by a couple of tech giants only. So if you make a comparison between US and China, in the US, computing power is mostly owned by a handful of tech giants, OpenAI, Meta, Alphabet. But if you make it as a utility, every developer across the mainland can just log into a system and then got as much computing power as they want. then it will create a very distributed system for AI innovations so that anyone who has the idea can just create his own model. And then we'll have a more collaborative environment for these developments, which is totally different from what we have in the U.S.

19:19There's a lot of uncertainty about this model. Will China be able to create a cheap and reliable power source that everyone can tap into? Will it be able to acquire the computer chips that AI development demands? And will China be able to make those chips itself, rather than relying on a U.S. company like NVIDIA? What we found in Xinjiang and Qinghai for these scale of data center development shows that Beijing is trying very hard to nurture its own domestic AI industry so that they can match the tech giants from the West.

20:08This is The Big Take Asia from Bloomberg News. I'm Wan Ha. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.

20:56with independent agents to help protect businesses, homes, valuables, and more. Because planning for the future isn't only about knowing what's next. It's about making sure you're ready for what you can't predict. Let Cincinnati insurance make your bad day better. Find an independent agent at CINFIN.com. As industries evolve faster than ever, companies need an environment that accelerates strategic growth, and Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance.

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