Ulanqab, a high-altitude city in Inner Mongolia, is becoming one of Asia’s fastest-growing centres for AI computing. Nearly 100 data centres have opened or entered construction there since 2016, while Chinese companies have announced projects representing an estimated 12.5 gigawatts of combined capacity.
More than 70% of those commitments were announced during the past year, according to a Goldman Sachs research note cited by WIRED. The scale signals a change in how Chinese AI developers obtain computing power: companies that historically rented capacity are beginning to invest directly in large physical infrastructure.
Cold weather and cheap power draw investment
Ulanqab’s location offers several advantages. Long, cold winters reduce the energy needed for cooling, and electricity in Inner Mongolia is among the least expensive in China. The region has expanded wind and solar generation while retaining abundant coal supplies.
The city is also close enough to Beijing for many workloads. Two dedicated fibre links completed in 2017 and 2019 reduced average latency to under five milliseconds, according to WIRED. That performance can support real-time services such as inference, while model training is generally less sensitive to delay because a run can continue for months without constant user interaction.
Chinese technology companies including DeepSeek, ByteDance, Alibaba and Xiaohongshu are reported to be building facilities in the area. DeepSeek’s project is described as particularly large, although WIRED does not provide a confirmed capacity or completion date for it.
Inner Mongolia has hosted data centres for a decade. Huawei opened one in Ulanqab in 2016 and Apple followed in 2019. The region later became part of the national “Eastern Data, Western Compute” strategy, which directs computing infrastructure toward China’s western interior. AI training and growing domestic demand have now given remote capacity a more commercially valuable role.
Water scarcity complicates the buildout
The same geography that provides cold air and inexpensive land also creates an environmental constraint. Ulanqab receives roughly 14 inches of rain annually, and the local government is already struggling to meet residents’ water demand. Last month, the municipal water company shut several waterworks for seven hours each night to reduce peak pressure.
Data centres in the city reportedly need additional cooling water during only two months of the year. That seasonal advantage may reduce annual consumption compared with warmer locations, but dozens of planned facilities could still add significant demand during the driest period.
WIRED does not provide a combined water forecast for the announced projects, so their effect on household supply cannot yet be quantified from the article. Commitments may also be delayed, redesigned or never completed. The current restrictions nevertheless show that infrastructure planning is already operating against a limited resource.
The issue complicates any simple claim that Inner Mongolia is an ideal low-cost location. Electricity and cooling efficiency matter, but a compute cluster also depends on reliable water, transmission lines, fibre and local consent. Capacity measured in gigawatts does not reveal whether all those supporting systems are ready.
Renewable growth still shares the grid with coal
Chinese officials see data centres as a way to consume renewable electricity that might otherwise be curtailed. Envision, a major wind-turbine manufacturer, announced a two-gigawatt Ulanqab AI facility this month that it says will connect directly to its own clean-power supply.
Researchers cited by WIRED have found a relationship between regions with unused renewable capacity and regions building data centres. Continuous computing demand could improve the economics of wind and solar projects by providing a large customer near the source of generation.
The electricity mix is not yet clean. Research cited in the article estimates that coal still supplies about 37% of Ulanqab’s power. Data centres operate around the clock, which has historically encouraged reliance on dispatchable fossil generation when wind or sunlight is unavailable.
Experts say the balance could shift quickly as Inner Mongolia adds renewables, but a fully renewable future remains a projection. Ulanqab’s boom demonstrates both China’s accelerating compute investment and the physical trade-offs beneath it: low-cost energy, cold weather and fibre connectivity on one side, water scarcity and continuing coal dependence on the other.
