Travel two hours west of Beijing by train to find Inner Mongolia, a region known for sheep farming and coal mining. In Ulanqab, a city in Inner Mongolia, nearly 100 data centers have been built or are under construction since 2016, making it one of Asia's fastest-growing compute clusters.

Companies like DeepSeek, ByteDance, Alibaba, and Xiaohongshu are investing in their own infrastructure in Ulanqab for the first time, signaling a shift in the AI industry. The city's appeal lies in its high elevation, cold winters, proximity to Beijing, and low electricity costs due to renewable energy sources and coal supply.

Ulanqab's rapid development, however, faces a water scarcity challenge due to its arid climate. The region's data center growth predates the AI boom, with Huawei and Apple establishing centers in Ulanqab.

The area was later designated a key hub in China's "Eastern Data, Western Compute" project. Despite initial challenges of high latency rates, remote data centers in Inner Mongolia found new purpose in AI model training, benefiting from connectivity improvements to major Chinese cities.

Ulanqab's commercial-driven growth sets it apart from other data center hubs in China, catering to the needs of domestic AI startups. Building data centers in Inner Mongolia aligns with China's goal of utilizing excess renewable energy capacity.

The government sees data center construction as a means to boost demand for clean power while keeping pace with the US in data infrastructure development. Envision's plan to construct a 2 gigawatt AI data center in Ulanqab using its renewable energy supply exemplifies this strategy.

However, challenges remain in transitioning from coal to renewables in the region, with a significant portion of Ulanqab's electricity still sourced from coal. The reliance on fossil fuels for data center operations poses a dilemma in the shift toward renewable energy, highlighting the complexities of China's energy transition.