Data Centres Are the New Factories: Malaysia Must Decide Where to Draw the Line
Overview
When people talk about the digital economy, the language is often weightless. We speak about “the cloud”, artificial intelligence, seamless connectivity. But after reading through the latest reporting on America’s data centre boom and speaking to planners, utility engineers, and local residents in similar discussions here at home, one thing becomes clear: the digital economy is anything but intangible. It is concrete, steel, water pipes, substations, diesel generators, and land-use decisions that sit uncomfortably close to people’s daily lives. Across the United States, giant, windowless warehouses are appearing at a pace of more than two a week. They feed AI models, store photos, and answer everyday questions. Each facility can consume as much power and water as an entire city. And yet, until investigative journalists stitched together permit records state by state, there was no official map of how many existed, where they were clustered, or even who truly owned them.
The Upside Is Real, But So Are the Costs
There is no denying the strategic value of data centres. They are foundational to AI, cloud computing, digital trade, fintech, health tech, and national digital sovereignty. Malaysia understands this well. That is why we have aggressively positioned Johor, Cyberjaya, Kulim, and parts of Sarawak as data centre hubs, backed by tax incentives, fast-track approvals, and promises of reliable power.
In that sense, Malaysia is following the same playbook as Loudoun County, Virginia (the so-called “data centre capital of the world”), where as much as a third of global internet traffic passes through. From the ground, it looks ordinary. From above, the scale is startling.
But the American experience shows what happens when speed outruns planning.
In Northern Virginia, data centres sit directly beside homes. Residents describe a constant low-frequency hum that is not always loud enough to breach regulatory thresholds, but persistent enough to disrupt sleep, trigger anxiety, and even cause vibrations in walls. One parent described his child waking up terrified, convinced “there’s a spaceship outside.”
From a policy perspective, this is a classic blind spot: regulations designed for traditional industrial noise were never meant for 24/7 hyperscale computing infrastructure. In the meantime, we are familiar with similar regulatory mismatches in Malaysia, where guidelines lag behind technological realities, especially when approvals are accelerated in the name of investment competitiveness.
Water, Power, and the Myth of Infinite Capacity
Perhaps the most sobering lesson from the US is water.
In drought-prone states like Arizona and Texas, data centres are drawing hundreds of millions (in some cases billions) of gallons of treated water each year to cool servers. One Microsoft campus alone was planned to use 1.83 billion gallons annually, equivalent to the needs of a mid-sized city. Nearly half of Amazon’s and Microsoft’s US data centres are located in areas of high or extreme water stress.
Malaysia is not Arizona. But we are not immune either.
Johor’s recent water stress episodes, Penang’s periodic supply disruptions, and the long-term uncertainties around climate variability should already be warning signals. Data centres compete silently with households, agriculture, and manufacturing — and when shortages hit, the social optics matter. Telling residents to conserve water while hyperscale facilities operate uninterrupted is a political and reputational risk, not just a technical one.
Power is the other constraint. In the US, data centres tracked by journalists could soon consume more electricity than entire countries. Utilities are delaying coal plant closures and building new gas plants just to meet AI-driven demand. In Virginia, grid upgrades could raise household electricity bills by up to 50%.
Malaysia’s grid is more centralised, but the trade-off remains the same. If data centres drive peak demand growth, someone pays either through higher tariffs, public infrastructure spending, or delayed decarbonisation targets.
Jobs, Incentives, and the Reality Check
One of the most striking findings from the US is employment. Even the largest data centres often employ fewer than 150 permanent staff. Some operate with as few as 25.
Yet tax incentives are generous. In Virginia alone, data centre projects received nearly USD1 billion in tax savings in a single fiscal year.
This is where Malaysia must be especially careful. Data centres are capital-intensive, not labour-intensive. They do not solve graduate underemployment. They do not anchor local supply chains in the way advanced manufacturing does. Their primary benefit is strategic, not social.
That does not mean we should reject them. It means we should price incentives accordingly, demand transparency, and ensure local communities are not absorbing hidden costs while multinational balance sheets capture the upside.
The Question Malaysia Needs to Ask
What struck most when reading the American accounts was not the technology, but the human fatigue. Homeowners fighting rezonings. Parents logging noise readings twice a day. Residents quietly planning to leave neighbourhoods they once loved.
Malaysia still has time to avoid this trajectory.
But only if we ask harder questions now:
- Where should data centres not be built?
- How do we integrate them into long-term water and power planning, not just investment promotion?
- What does “fair share” really mean when grid upgrades and water infrastructure are required?
- And how transparent are we willing to be with the public about trade-offs?
Data centres are the factories of the digital age. Factories once reshaped cities, rivers, and labour markets. We learned, sometimes painfully that zoning, safeguards, and social consent matter.
If Malaysia wants to lead in the digital economy, the goal should not be to build the most data centres, but to build them wisely. The American experience is not a warning against progress. It is a reminder that unmanaged progress has a habit of showing up in people’s bedrooms at night, humming softly, relentlessly, and far too close to home.