Regulation, Geopolitics and Other Pressures on Southeast Asia’s Data Centres
How Geopolitics, Power Supply and Water Security Will Define Southeast Asia’s Data Centre Future
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November 10, 2025
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Southeast Asia has rapidly emerged as a global hub for data centres, driven by rising AI adoption and accelerated digital transformation of businesses across the region. An estimated 397 MW of new capacity data centre is expected to come online by 2028, positioning the region as both a centre of technological innovation and a testing ground for evolving regulatory frameworks and sustainability standards.1
Why Southeast Asia?
The region’s appeal for global technology operators stems from lower land costs, affordable power and relative geopolitical neutrality, making it an attractive destination for new investment.2 However, Southeast Asia is often mistakenly viewed as a single, uniform market despite investment drivers, operating environments and political landscapes differing widely across markets. For example, Vietnam’s focus on data sovereignty has spurred significant regulatory reform, mandating that certain data be stored locally and that providers establish a local presence,3 whereas Malaysia and Singapore do not impose blanket data localisation obligations.4
Singapore, long regarded as Asia’s primary data centre hub, offers regulatory stability and foreign ownership — advantages that for years secured its lead in the sector. However, a moratorium on new data centres between 2019 and 2022 prompted operators to expand into neighbouring markets.5
Malaysia’s Rise and Johor-Singapore Special Economic Zone Regulatory Uncertainties
Malaysia has been the principal beneficiary of Singapore’s constraints; by 2030 data centre capacity is projected to double and revenue expected to reach $1.87 billion.6 The country, particularly the southern state of Johor, has overtaken Singapore as Southeast Asia’s fastest-growing data centre hub, with approximately 47 data centres operational or in development in the state alone.7 The Johor-Singapore Special Economic Zone (“JS-SEZ”) presents compelling advantages, with significantly lower land and energy costs; proximity to Singapore’s subsea cable ecosystem and talent mobility and taps into dual-market access between Malaysia and Singapore.8 Regulatory clarity around the JS-SEZ remains limited though. Many prospective investors have adopted a wait-and-see approach, noting that the incentives and rules governing the SEZ are still being finalised, with a comprehensive blueprint is expected by December.9
Other Southeast Asian markets, including Indonesia, Vietnam and Thailand, are rapidly expanding their digital infrastructure, each working to improve connectivity, attract investment and balance ambitions with the need for energy stability. In September, Indonesia Investment Authority announced it is prioritising data centres alongside healthcare and renewable energy.10 Thailand is also gaining momentum; in the first half of 2025, the sector attracted investments exceeding $16 billion.11 In July, Vietnam issued a decree to streamline regulatory approvals for information and communications technology, including telecommunications and data centres.12
What To Watch
As the digital economy expands, Southeast Asia’s data centres are rapidly becoming the infrastructure backbone and regulatory frontier for the region’s next phase of growth. Regulatory regimes are highly dynamic, sometimes evolving in response to geopolitical trends and national security concerns.
Recent media reports indicate there is international scrutiny of data centres in Malaysia with Chinese ownership, with a focus on compliance with technology-related regulations and the handling of advanced semiconductors.13 Southeast Asia now hosts one of the largest concentrations of Chinese-owned data centres outside mainland China,14 underscoring the region’s importance in global technology networks.
Scaling up renewable energy capacity and grids will be core to the region’s grand data centre ambitions. Data centres require significant computing power, placing heavy demand on regional energy grids that remain dominated by non-renewable sources and ageing infrastructure. These countries must also work to deliver on their net-zero commitments and strengthen energy security, all while continuing to expand data centre capacity. The long-discussed ASEAN Power Grid remains under development, with recent progress lifting hopes that it will strengthen regional energy connectivity in coming decades.15
When it comes to data centres, water scarcity is becoming just as critical as geopolitical and energy-related dynamics. One study found that 11 of 28 data centres sampled are projected to face ‘medium-high’ to ‘extremely high’ levels of water stress by 2030, which was noted to be severe in Thailand and Indonesia.16
This intensifying environmental risk highlights how water, alongside energy security and geopolitics, will be a decisive factor in shaping the region’s data centre future. Malaysia is now introducing a dedicated water tariff for data centres17 and is expanding wastewater-reclamation initiatives to ease supply pressures.18
Stakeholder Engagement: Policy, Community and Media
The challenges and pressures around Southeast Asia’s technological gold rush can accumulate and escalate into concerns for both citizens and regulators. Effective engagement with government agencies – particularly those overseeing digital, economic, trade, climate and energy portfolios – is essential. Understanding the impact of new frameworks and climate change legislation on compliance obligations shapes not only corporate strategy but also operational viability in each market.
Media coverage and growing NGO activism are also drawing attention to data centre energy use and sustainability practices.19,20 Operators need to keep abreast of evolving stakeholder expectations at the community level. In Malaysia, for example, authorities rejected nearly 30% of data centre proposals that failed to demonstrate responsible water and power consumption practices.21 Community engagement is now an unmistakable part of the puzzle, even if these groups aren’t always directly credited for policy outcomes.
Investor Takeaways: Operating With Transparency and Resilience
For investors and technology firms positioning Southeast Asia as a data centre hub, progress requires open communication with regulators, adoption of sustainable practices and coordinated engagement across ministries and society. Investors should monitor official consultations and wider policy discourse on climate and digital infrastructure, as policy can shift quickly and without notice.
Despite geopolitical headwinds, the region offers long-term opportunity. Those who manage regulatory risk, invest in sustainability, engage transparently and build trust with stakeholders will be best placed to capture the next wave of economic and digital growth. In practice, that means active monitoring, informed engagement and clear external communication to support resilient and responsible development.
Footnotes:
1: “Southeast Asia’s data centres and AI infrastructure imperative,” Deloitte (September 2025).
2: Kang Wan Chern, “South-east Asia emerges as global data centre hot spot as AI usage rises,” The Straits Times (October 14, 2024).
3: “Vietnam’s Data-Localization Regulation,” Information Technology & Innovation Foundation (August 26, 2025).
4: Rouse, “Data Localisation and Transfer Issues in Southeast Asia,” Mondaq (September 30, 2025).
5: Alfred Ng, Yi Ming Choo, Rebecca Cope and Andrew Hilton, “Lessons from Singapore Data Centres,” Ashurst (August 30, 2023).
6: “The economic impact of data centres to the Malaysian economy,” Asia-Pacific Data Centre Association (July 2025).
7: Sara Loo, “Data centres are booming in Malaysia’s Johor. Now comes the hard part – job creation,” South China Morning Post (March 2025).
8: “Johor-Singapore Special Economic Zone: A rising cross-border hub for data centers,” Reed Smith (June 2025).
9: Luqman Amin, “Rafizi: Johor-Singapore SEZ comprehensive blueprint to be finalised by end-2025,” The Edge Malaysia (May 19, 2025).
10: Yantoultra Ngui, “Indonesia sovereign wealth fund INA targets data centres, AI in healthcare, renewables” Reuters (September 17, 2025).
11: “Thailand First-Half Investment Applications Hit USD32.5 billion on Soaring Data Center Sector, Significant Pledges in E&E and Infrastructure, BOI Says,” Thailand Board of Investment (July 2025).
12: Amber Jackson, “Information Governance : The Key to Managing Data in 2025”, Data Centre Magazine (February 7, 2025).
13: Eduardo Baptista, Ashley Tang, Jun Yuan Yong, “Malaysia reins in data centre growth, complicating China’s AI chip access,” Reuters (September 2025).
14: Jamille Tran, “China’s AI firms are going regional for compute power – and South-east Asia is cashing in,” The Business Times (May 2025).
15: Zufazlin Baharuddin, “ASEAN Power Grid Makes Strides With Launch of US$10Bln Financing Initiative,” Bernama (October 2025).
16: “Data centers in Asia Pacific are thirsty and feeling the heat,” Gresb (September 2025).
17: Yee Xiang Yun, “Johor’s water tariff adjustment: Data centres would have to pay more,” The Star (August 2025).
18: Harith Mustaffa, “Higher costs, tighter rules: Johor’s water-guzzling data centres turn to Newater-like tech,” The Straits Times (August 2025).
19: Genevieve Mallet, “Can Malaysia’s AI data centres go green?” Macaranga (August 5, 2025).
20: Meenakshi Raman, “Data centres are big energy and water guzzlers,” Sahabat Alam Malaysia (August 2025).
21: Zunaira Saieed, “Johor rejects nearly 30% of data centre applications to protect local resources,” The Straits Times (November 19, 2024).
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November 10, 2025
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