China's AI Boom Has a Surprising Home: A Grassland City in Inner Mongolia
Nearly 100 data centres have opened or begun construction in Ulanqab since 2016. DeepSeek, ByteDance and Alibaba are all building there. A water crisis is already brewing.
Key points
- Chinese companies have pledged a combined 12.5 gigawatts of data centre capacity in Ulanqab, Inner Mongolia, more than the planned total of OpenAI's $500 billion Stargate Project.
- Over 70 percent of those commitments were announced in the past year alone, according to a Goldman Sachs research note.
- DeepSeek, ByteDance, Alibaba and Xiaohongshu are all reportedly building their own data centres in the city.
- About 37 percent of electricity in Ulanqab still comes from coal, despite the region's fast-growing wind and solar capacity.
- Ulanqab receives roughly 14 inches of rain per year, and its local water company already shuts off supply for seven hours each night to manage demand.
Two hours west of Beijing by train, rolling grasslands give way to ancient volcanic craters and a city of 1.5 million people that almost nobody outside China has heard of. Ulanqab, in the semi-arid region of Inner Mongolia, used to be famous for sheep farming and coal. Now it is quietly becoming one of the most important places in the global artificial intelligence race.
Nearly 100 data centres, the large buildings packed with computer servers that store and process digital information, have opened or begun construction in Ulanqab since 2016. Chinese companies have pledged projects totalling an estimated 12.5 gigawatts of computing capacity, a measure of electrical power that signals how much raw processing muscle a facility can run. For context: OpenAI's $500 billion Stargate Project, the most-talked-about AI infrastructure effort in the United States, is planned to reach only 10 gigawatts when fully built.
Why does an obscure city in Inner Mongolia win out?
Three practical reasons make Ulanqab attractive. Servers generate enormous heat, so cold winters at high elevation cut the energy bill for cooling. The city sits close enough to Beijing that data travels with minimal delay. And electricity is cheap, thanks to plentiful coal and fast-growing wind and solar farms nearby.
What makes this moment different from earlier data centre waves is who is building. For the first time, major Chinese AI companies are investing in their own physical infrastructure rather than simply renting computing power from cloud providers. DeepSeek, the AI startup whose models made headlines internationally earlier this year, is reportedly building a large facility in Ulanqab, as are video platform ByteDance, e-commerce giant Alibaba, and social app Xiaohongshu. As Wired AI reported, Chinese AI firms have historically spent far less on physical infrastructure than their American counterparts, even while producing competitive AI software. Ulanqab signals a shift.
What is the catch?
Water. Ulanqab is as dry as Denver, receiving around 14 inches of rain per year. Data centres use large quantities of water to keep servers cool, and the city is already struggling. Last month, Ulanqab's local water company cut supply for seven hours each night just to keep up with existing residents' needs, before most of the planned facilities are even running.
The energy picture is also mixed. Renewable sources are growing fast, and wind turbine maker Envision announced this month it will build a 2 gigawatt data centre in Ulanqab connected to its own clean power. But roughly 37 percent of the city's electricity still comes from coal, according to research by Andrew Stokols, a professor at Singapore Management University who studies China's computing infrastructure. Because data centres must run continuously, operators have long preferred the reliability of fossil fuels over intermittent wind and solar.
| Factor | Ulanqab figure |
|---|---|
| Data centres opened or under construction (since 2016) | ~100 |
| Total pledged computing capacity | 12.5 gigawatts |
| Share of commitments made in past year | Over 70% |
| Annual rainfall | ~14 inches |
| Share of electricity from coal | ~37% |
| Fibre-optic latency to Beijing | Under 5 milliseconds |
"Inner Mongolia has long been the West Virginia of China. It's a coal country," says Damien Ma, director of Carnegie China. The region is racing to swap coal for renewables, but the pace of that transition is still unclear. For the residents of Ulanqab, the most pressing question may not be about clean energy at all. It may simply be whether there is enough water to go around.
