Tokyo challenges Beijing as Asia's data center hub

Greater Tokyo has seen a sharp increase in data centers, thanks to a dramatic rise in demand for data processing at home and abroad. The total capacity of data facilities in the Tokyo region is expected to double in three to five years, making it the second-biggest data center hub in Asia after Beijing.

Japan's capital is quickly closing the gap with Beijing as global information technology companies and other businesses turn way from the Chinese city due to growing security concerns and U.S.-China tensions.

Many data centers have sprouted in and around Tokyo, including the Tama district. Inzai, in Chiba prefecture, east of Tokyo, hosts numerous facilities used by IT giants, including Google, Amazon and NEC, all eager to take advantage of its proximity to the capital and the fact that the area is less prone to natural disasters and blackouts.

"Demand for data centers is growing rapidly in Japan, and Inzai is in a strategic location," said Norihiro Matsushita, head of the Japanese unit of AirTrunk, an Australian data center operator that opened a large facility in Inzai in 2021.

Fueling the construction boom in Japan is a sharp increase in local data traffic as businesses move forward with digital transformation and more employees work from home. More companies are also moving servers closer to home to speed up data transfer and reduce the risk of data leaks.

The sharpening U.S.-China rivalry over trade and other issues is also making many businesses nervous about using data facilities in China. Japan is seen as an attractive alternative.

Situated between North America and Eurasia, Japan can serve as an ideal relay station for Meta (Facebook's parent company), Google and other U.S. IT giants to move massive amounts of data, said an expert. "Heightened concern about the 'China risk' has increased Japan's relative importance as a reliable gateway to Asia," said Hiroshi Esaki, a professor at the University of Tokyo and an expert in global information and telecommunications networks. The amount of data transmitted via Japan is expected to increase as more undersea cables are laid in the Pacific Ocean.

Meanwhile, China's position as Asia's premier data hub is weakening. Many construction projects in Beijing and Shanghai failed because of COVID-19 lockdowns, said Vivek Dahiya of Cushman & Wakefield. Cable projects meant to link Hong Kong with North America have also been suspended or revised since 2020.

A large concentration of data centers could help Japan catch up with its rivals in fostering digital industries. The development of high-speed data infrastructure will "accelerate digitization in every sector, boosting the country's competitive edge," said Esaki. "It will also help Japan attract more talent from abroad."

The key is to keep the cost of operating data facilities low. Data centers consume a lot of power, and with electricity two to three times more expensive in Tokyo than in mainland China, the cost of new data centers could rise if utility bills continue to climb. Singapore lost a bid to host data centers to Malaysia and Thailand due to its high electricity and land prices.

To make itself less dependent on fossil fuels, Japan needs to promote wider, more efficient use of renewable energy.

The government is also eager to ease the concentration of data centers in big metropolitan areas by encouraging construction of facilities elsewhere. It says this will lower the cost of buying land and reduce the risk if a natural disaster hits.

Japan must have a comprehensive strategy to compete with rivals as it looks to attract data centers from abroad and take the lead in the digital transformation of business.