Regional cooperation crucial as Southeast Asia’s AI boom accelerates

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According to the Hinrich Foundation, the AI race is a competition for resources as much as it is of algorithms and innovation. Southeast Asia is a key terrain in the AI race both for resources and innovation.

From semiconductor manufacturing to data centres and research hubs, AI-driven investments are projected by some analysts to bump a 10 –18 per cent GDP increase in the region by 2030. But its intensifying demand for power, land, water, and industrial capacity means the AI boom is also a stress test on whether ASEAN can convert the gains of its individual member states into a collective regional win.

In the midst of the AI race, Southeast Asia thrives. The region has become a landing for tech giants seeking to expand computational capacity and diversify supply chains amid global geo-economic rivalry. One visible result is the sprawling data centres and technological parks across the region. The Southeast Asian semiconductor industry is catching the same updraft.

Yet a thriving AI boom in Southeast Asia is not an automatic credit on the ASEAN side of the ledger. The AI race unfolding in the region is a race between Southeast Asia’s 11 sovereign member states. For investors, the region isn't much of a single choice but rather a menu of competing destinations, with each country offering different levels of resource availability, location connectivity, and talent capacity.

The Hinrich Foundation highlights that the sales pitch for Southeast Asia hinges on what ASEAN provides in regional cohesion. The ASEAN Digital Economy Framework Agreement (DEFA) marks an important step towards more substantive regional coordination underpinning the tech boom.

So too should the decades-long aspirations for the ASEAN Power Grid be to connect the region’s power networks and collectively boost its energy security and renewability. The regional peace and stability that ASEAN underwrites the relatively safe environment for foreign direct investment as it looks for alternatives to older chip hubs in Northeast Asia.

But the Southeast Asian digital economy isn’t really an ASEAN achievement yet. Malaysia is the fastest-growing data centre market in Southeast Asia, gaining ground after its southern neighbour Singapore issued a moratorium in 2019 on new data centres due to constraints on Singapore’s land, water, and energy. Vietnam, Thailand, the Philippines, and Indonesia are emerging as destinations for large-scale projects including from Amazon Web Services, Microsoft, and Google. By early 2026, hyperscalers had invested more than $50 billion worth of AI-ready data centre and cloud infrastructure across the region.

The region has long occupied the back end of the semiconductor supply chain in assembly, testing, and packing (ATP), and accounted for 23.6 per cent of global chip exports in 2023. Vietnam and the Philippines are rapidly expanding their role in ATP and other back-end processes, while established hubs such as Malaysia and Singapore are seeking to capture higher-value segments in chip design and fabrication.

To compete for tech investments, Southeast Asian nations offer different fiscal and regulatory incentives. Vietnam, home to low-cost, high-skilled workers, offers a preferential 10 per cent corporate income tax rate for the first 15 years, compared to the normal 20 per cent rate. The country scrapped personal income tax derived from research and innovation activities. In Thailand, AI companies are eligible for 100 per cent foreign ownership, relaxed working permits, and up to eight years of tax exemptions. Indonesia offers the most generous tax breaks of up to 20 years for AI and data centre FDI.

But a race pursued individually cannot deliver the same leverage that the region could wield collectively. Competing fiscal and regulatory concessions weaken each government’s individual bargaining power. Some key infrastructure underpinning the AI economy, such as power grids, subsea cables, and cloud services, increasingly extends across national borders. ASEAN is nowhere near creating the supranational authority, nor act sufficiently as a single economic bloc in ways that might amplify gains from the individual races into collective leverage for the region.

The Hinrich Foundation noted that ASEAN may benefit from stronger coordination where national AI projects depend on shared infrastructure. The association could do more to even out asymmetric cross-border resource and environmental pressures arising from AI projects. Its regional standards affect the region's collective bargaining position.

Scheduled to be formally signed in November 2026, DEFA is set to become the first region-wide binding agreement for the digital economy including cross-border data flows, electronic payments, and AI.

As that digital economy expands, it increasingly makes the case for ASEAN stepping up to coordinate the demands on the physical resources and infrastructure across the region. The region’s AI build out has consequences that increasingly extend beyond national borders. Meeting network needs such as subsea cables and energy grids will likewise require unprecedented cooperation among ASEAN member states.

Another test for ASEAN’s coordination lies in the surging power demand from AI infrastructure. In particular, it is a test for the ASEAN Power Grid, the association’s longstanding vision of connecting national electricity networks and supplying power equitably across the region.

In Southeast Asia, the AI boom is posing the question whether ASEAN can overcome its structural and institutional constraints. If so, Southeast Asia’s collective leverage can make ASEAN not just a provider of value but a shaper of the AI economy.

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