China’s Cheap Power Push To Tilt the AI Race
Plus: China’s Cheap Power Push To Tilt the AI Race
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The AI race is quickly becoming a battle for cloud power. Tech giants now sit on more GPUs than the electric grid can support, turning compute and energy into the new oil of the digital era. China is countering with massive energy subsidies that could tilt the balance in its favor, while Microsoft and others play chess-like moves to lock up cloud access and outsource power capacity.
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China’s Cheap Power Push To Tilt the AI Race
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China’s Cheap Power Push To Tilt the AI Race
China is cutting electricity costs by up to 50% for major data centers using domestic AI chips from Huawei and Cambricon, according to the Financial Times. Local governments in regions like Guizhou, Gansu, and Inner Mongolia are offering massive energy subsidies to tech giants, including ByteDance, Alibaba, and Tencent, a move to offset U.S. chip bans and boost homegrown computing power.
With industrial electricity dropping to ~$0.056/kWh (half U.S. rates), China could rapidly expand its AI infrastructure, training more models and deploying AI at scale. US AI companies are struggling to power GPUs and are sitting on more hardware than they can power. Cheaper energy may help Chinese firms narrow the compute gap with the West, even if their chips are less efficient. Lower-cost AI experimentation, faster scaling, and a stronger domestic ecosystem all powered by state-backed energy policy.
The AI race has become an energy race, and those with access to more and cheaper energy will have the upper hand.
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Microsoft’s $33 B Compute War
Microsoft has quietly turned the cloud race into a power play. Its latest $9.7 billion deal with IREN converts a former bitcoin miner into a GPU fortress for AI workloads, following a $17.4 billion contract with Nebius and earlier multi-billion-dollar pacts with CoreWeave. These “NeoCloud” alliances give Microsoft instant access to hundreds of thousands of Nvidia GB300 chips without waiting years to build data centers. In effect, Microsoft is outsourcing infrastructure risk while securing a near-monopoly on high-end compute capacity.
These NeoClouds act as leveraged shock troops, borrowing billions against Microsoft contracts to rapidly deploy liquid-cooled GPU farms. It’s a new kind of industrial policy funded by debt and fueled by AI hype. This leads to computing that comes online faster than regulators or power grids can respond. Microsoft gains agility and scale; its partners gain survival-level revenue; Wall Street gains another asset class built on AI infrastructure.
Competitors like Amazon and Google are countering with their own massive compute commitments, while China is cutting energy costs by half to power domestic AI chips. Microsoft’s strategy resembles a chess match for compute dominance, trading capex for strategic positioning and locking up GPU supply before anyone else. The risks are over-leveraged partners, soaring energy costs, and a race that may outpace real AI demand.
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The IREN deal is textbook Microsoft strategy: outsource the capex risk, lock in the compute capacity, and let the partner take on the debt burden while you secure GPU supply. What's clever is they're essentialy financing IREN's buildout through prepayments, which means Microsoft gets priority access without the balance sheet hit. The fact that these NeoClouds can deploy capacity faster than Microsoft's own data centers is a feature, not a bug. If the AI demand thesis breaks, Microsoft has limited downside while the partners are left holding billion dollar facilities.
The 50% electricity discount for Tencent's data centers using domestic chips is a strategic move that addresses both the chip ban and infrastructure costs simultaneously. At $0.056/kWh, Chinese companies can train models at fractions of the cost even if they're using less efficient hardwre. This reminds me of how state subsidies have historically enabled Chinese tech to scale quickly. If energy becomes the bottleneck in AI, China just turned it into an advantage.