Not so fast. Malaysian Prime Minister Anwar Ibrahim told the Dewan Rakyat, Malaysia's lower house of parliament, on 24 February that applications for new data centres unrelated to AI have been halted. The restriction had already been running for close to two years.

• "If there are benefits in terms of high technology and AI advancement, those are easily approved," he said. New applications from data centres chasing cheap water and power, he added, "have already been stopped."
• He also said Malaysia's electricity and water supply is still enough for existing operations and approved projects.

Johor moved first. Johor is the Malaysian state at the southern tip of the peninsula, directly across the water from Singapore, and it now holds around 80% of the country's operational data centre capacity.

• On 28 November, the state stopped approving Tier 1 and Tier 2 data centres, the older, thirstier kind. Datuk Mohd Jafni Md Shukor, who chairs Johor's housing and local government committee, said they use roughly 200 times more water than newer Tier 3 and Tier 4 facilities.
• Johor also asked operators to hold off on water-cooled expansions for about 18 months, until mid-2027.

💧 Why water?

According to Bank Negara Malaysia, the central bank, a 50-megawatt data centre can use as much water in a day as 2,200 households, and as much electricity as 22,000.

• In February, residents of Iskandar Puteri in Johor protested against a 300-megawatt complex being built by ZDATA, a Chinese operator. Some said their water pressure had dropped before the site had even switched on. ZDATA told Reuters its compound was not the cause, and says it runs entirely on treated wastewater.
• Dust from the works got bad enough that the land developer set up two free car washes for residents.

💰 And here's the trade

As of November, Johor had approved 51 data centre projects worth RM183 billion, about US$44 billion. The state expects them to create 7,561 skilled jobs.

• That works out to roughly RM24 million of investment per job. Data centres are buildings full of machines, not people.

How Johor got here. Singapore froze its own data centre approvals from 2019 to 2022. Johor picked up around $35bn, with Amazon, Microsoft, Tencent and Alibaba all building across the causeway. Malaysia has since overtaken Singapore as Asia's fastest-growing data centre market, and property firm JLL expects Johor's planned capacity to rise eightfold, to 7,000 megawatts.

📖 The concept: a negative externality. A cost created by a deal, paid by somebody who wasn't in it.

Think of a noisy neighbour. They pay their own rent and break no rules. You're the one who can't sleep, and nobody asked you.

Same shape here. The data centre pays for its land, its power and its water. The family two streets over signed nothing, but they're on the same pipes and the same grid.

What's everyone else doing? Singapore, the country that froze approvals in the first place, is still the region's biggest host at over 1.4 gigawatts. Vietnam has let foreign investors own data centres outright since July 2024, and a law from this January requires Vietnamese users' data to stay in the country. The Philippines has a pipeline of nearly 500 megawatts around Metro Manila.

📖 The concept: the binding constraint. When a few things hold you back at once, usually only one of them actually matters.

You're baking a cake. You have eggs, sugar, butter and an oven. No flour. Buying more eggs will not help.

Governments across the region are competing on tax breaks and ownership rules. Malaysia isn't turning data centres away over either. It's turning them away over water and power.