Data Centers Flock to Tokyo as Beijing’s Appeal Fades

A snow-capped Mount Fuji is seen from the observation deck of a skyscraper in Tokyo on Dec. 14, 2018. (Kazuhiro Nogi/AFP/Getty Images)

Tokyo has benefited from the rapid deterioration of the business environment in China, becoming a preferred choice for global information technology companies considering relocating from Beijing. As tech companies flock to Japan, the Tokyo metropolitan area—a longtime high-tech hub—has become home to the largest cluster of data centers in the Asia Pacific region.

Projections indicate that the total data facility capacity in the Tokyo region will likely double within the next three to five years, positioning it as the second-largest data center hub in Asia, challenging Beijing, which currently ranks first.

The shift is largely attributed to mounting security concerns, risks that outweigh the lower costs of doing business in China, and a less-than-friendly business environment within China. For American companies, a major factor is the escalating friction between the United States and China. Meanwhile, Japanese data companies are finding that the benefits of doing business at home outweigh the increasing risks of doing business in China.

Data processing is becoming increasingly important in today’s society. Data centers continue to grow in size and number: there are currently more than 8,000 in the world. According to a Jan. 16 article on financial blog Zero Hedge, the amount of data created each year has risen dramatically, from 2 zettabytes in 2010 to 44 zettabytes in 2020. The term “zettabyte” is itself a testament to the enormity of the world’s appetite for data: one zettabyte equals one trillion gigabytes.

According to Cushman & Wakefield’s Asia Pacific data center update for 2023, just five cities—Beijing, Shanghai, Singapore, Sydney, and Tokyo—account for 62 percent of the region’s operational data center capacity, with Beijing leading the pack. However, according to the global real estate services company, Beijing’s data center capacity will increase at a relatively slow rate in the next three to five years, while Japan may see its data power capacity double in the same period.

Tokyo Suburbs Lure Tech Giants: Hello, AWS

Within the Tokyo metropolitan area, Inzai City has become a data center hotspot. Many tech companies, including Amazon, Google, NEC, NTT, SCSK, and Mitsubishi Research Institute have established data centers in the city.

Inzai City has several advantages for data centers, including a favorable business environment, its location close to the capital, good power availability and connectivity, and low earthquake risk.

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In March 2023, Google began operations at the data center it built in Inzai City. The data center is the search giant’s first in Japan. Google planned to invest a total of 100 billion Japanese yen (about $680 million) in Japan through 2024.

Google said in its announcement, “Japan is a leading economy and technology hub in Asia. Inzai has the right combination of skilled workforce, high-quality digital infrastructure, and developable land.”

Hyper-scale data center developer Air Trunk is currently in the third phase of construction for its TOK1 campus in Inzai. The campus, begun in 2020, will be one of the largest independent data centers in Asia, according to the company.

Norihiro Matsushita, head of the Japanese unit of AirTrunk, said “Demand for data centers is growing rapidly in Japan, and Inzai is in a strategic location.”

In addition to Inzai City, the Tama area of Tokyo is attracting data centers, with Amazon Web Services (AWS) among the tech companies located in the city. The mountain suburb may be best known for Sanrio Puroland, a theme park dedicated to Hello Kitty.

AWS announced Jan. 19 that it will invest a whopping 2.26 trillion yen (about $15.24 billion) in Japan through 2027 to expand its local data center network, located in Tokyo and Osaka. According to AWS, the expansion will add the equivalent of $38 billion to Japan’s gross domestic product.

Domestic Companies Come Home

Japan’s domestic tech companies are adding to the data center boom. One reason is the increase in local data traffic in Japan. With the widespread adoption of remote work and the growing digital transformation of businesses, the demand for data centers that house servers is also expanding.

Secondly, to speed up data transfer and reduce data leak risks, more Japanese companies have moved servers back to Japan from overseas, including from China.

The flood of data centers relocating to Tokyo has created excellent business opportunities for the Japanese data industry and facilitated the development of infrastructure for handling large amounts of data.

CCP Data Grab Drives Away Tech

A major factor in the shift from Beijing to Tokyo is Chinese aggression and an unfriendly business environment within China.

Companies are uneasy about security controls and government protection of Chinese rivals, according to an EU Chamber of Commerce report. Companies are uneasy about Beijing’s promotion of national self-reliance as China presses businesses, and others to use Chinese suppliers even if that raises their costs.

Further, the Chinese Communist Party (CCP) continues to provoke and challenge the United States in the Asia-Pacific region, leading to escalating tension between the two countries and driving American companies away from China.

Moreover, the CCP’s newly revised anti-espionage law, introduced in April 2023, has become a huge ticking bomb. Data is regarded as “important intelligence” by the regime.

For data companies in particular, the espionage law makes operating a China a huge risk, says one expert who was on the inside at Chinese tech company Huawei.

Jin Chun is a former senior engineer at Huawei. He worked at the telecom giant for three years.

“The reason why Japanese companies moved their data centers from Beijing back to Tokyo was because the political risks in Beijing were too high and the business costs due to CCP’s data censorship were also too high,” Mr. Jin told the Chinese edition of The Epoch Times. He cited Thomas Friedman’s book “The World Is Flat” to illustrate the historical consequences of the shift.

Mr. Jin said that for foreign companies looking to develop data centers, such risks make it difficult to take advantage of China’s lower labor and power costs, ultimately driving many of them elsewhere.

“While people in the West are a bit late to wake up to the CCP, they eventually awakened to it,” he remarked.

China’s Data Security Law

Increasing the chilling effect of the recently revised anti-espionage law is China’s Data Security Law. The law was first released on Nov. 1, 2021, with serious implications for cross-border cooperation and cross-border flow of data. It includes data activities carried out abroad in its scope of legal control. Article 2(2) of the Data Security Law claims, “Anyone who carries out data processing activities outside of China and damages China’s national security, public interests, or the lawful rights and interests of its citizens or organizations will be investigated for legal responsibility in accordance with the law.”

For so-called “core data,” the CCP imposes stricter supervision. For example, Article 24 of the law states, “National security examination shall be conducted on data processing activities that affect or may affect the security of China.”

The law’s definition of security is very general and vague, and its interpretation rests solely with CCP regulators, leaving much room for abuse.

For foreign companies, the two laws, with their huge and undefined scope, are a potentially huge threat. Data companies could be convicted of crossing the red line at any time. As a result, China’s data industry is quickly cooling down.

Facilitating China’s Transformation

On a positive note, Mr. Jin believes that Japan’s surging data centers could ultimately help transform China and create a safer and more prosperous future for itself.

“Japan should aggressively compete with the CCP in [the] data industry, to help Chinese netizens breakthrough the CCP’s Great Firewall, hide their IPs, and help Chinese people legally engage in cross-border business,” he said.

“If China’s political transformation succeeds in the future, it will be a major boon to Japan’s economy; if China remains as it is now, Japan will have to bear a huge military and social cost, as well as economic risks.”