China has spent billions of dollars building far too many data centers for AI and compute – could it lead to a huge market crash?
- DeepSeek is just one of the many reasons China’s AI growth simply didn’t materialize
- Up to 80% of new data center capacity hasn’t been used according to local sources
- Should this capacity hit the wider market, it could cause a major headache to data center developers
China’s AI infrastructure boom is faltering, as according to a report in MIT Technology Review, the country built hundreds of data centers to support its AI ambitions, but many are now sitting unused.
Billions were invested by both state and private entities in 2023 and 2024, with the expectation that demand for GPU rentals would keep growing, but uptake has in fact dropped off, and as a result many operators are now struggling to survive.
Much of the early momentum was driven by hype. The government, keen for China to become a global leader in AI, encouraged local officials to fast-track data center construction with the result that more than 500 projects were announced nationwide, and at least 150 were completed by the end of 2024, according to state-affiliated sources. However, MIT Technology Review says local publications are reporting that up to 80% of this new computing capacity remains idle.
Selling off GPUs
Location is also a problem, MIT Technology Review notes. Facilities built in central and western China, where electricity is cheap, now face issues meeting latency requirements. In cities like Zhengzhou, operators are reportedly even giving away free compute vouchers in an attempt to lure users.
In some regions, developers began selling off GPUs after failing to secure long-term clients.
Xiao Li, a data center project manager who spoke with MIT Technology Review, said many WeChat groups that once boasted about Nvidia chip deals have gone quiet. “It seems like everyone is selling, but few are buying,” he noted.
Should this capacity hit the wider market, it could cause a major headache to data center developers, flooding an already soft sector with even more supply and pushing prices down further.
One reason for the drop in demand is the rise of DeepSeek, which upended the global tech economy when it launched in January 2025.
Its open source reasoning model, R1, matches the performance of ChatGPT o1 but at a lower cost, shifting interest away from model training and toward inference – the real-time use of AI models, which requires different infrastructure.
Many of the data centers built during the rush were designed for large-scale training, not the low-latency demands of real-time reasoning.
Despite the oversupply, the Chinese government reportedly remains committed. Central authorities held an AI symposium in early 2025, and firms like Alibaba and TikTok owner ByteDance have announced major investments.
For many early data center investors however, expectations have collapsed. The infrastructure was built, but the demand it was meant to supply simply hasn’t arrived.
