Asia's AI Boom Is Real, but Economists Warn Southeast Asia May Get Only a 'Short-Term Blip'

SINGAPORE —

AI demand is driving some of the biggest economic numbers Asia has seen in years. Taiwan is headed for its first year of double-digit GDP growth since 2010 on the strength of AI hardware exports, Fortune reported. Japan, Malaysia, Singapore and mainland China all posted export growth above 20 percent in July, and South Korea, home to chipmakers SK Hynix and Samsung, saw exports jump more than 60 percent, according to Fortune. Stock markets have followed: shares in memory chipmaker ChangXin Memory Technologies and robot maker Unitree each surged more than 450 percent on their trading debuts, and South Korea's KOSPI index is up almost 60 percent this year despite recent losses, Fortune reported.

A Boom Built on the Wrong Rung

But economists who study the region told Fortune that Southeast Asia's slice of the boom rests on a shakier foundation. The region mostly supplies lower-end chips, plus the electricity and land that power data centers, rather than the most advanced processors, said Danny Quah, an economist at the Lee Kuan Yew School of Public Policy in Singapore. "These are commodifiable, and no one will have a sustained comparative advantage in them," Quah told Fortune.

That has not stopped a near-term surge. Singapore raised its 2026 growth forecast from a range of 2 to 4 percent to 4.5 to 5.5 percent on August 11, citing AI-related exports, Fortune reported. Malaysia is leaning on its role in chip assembly and testing, and has rolled out a national AI plan meant to push local firms into higher-value work. "Malaysia is not merely a user of AI; we must build our own capabilities, strengthen the ecosystem and compete globally," the country's communications minister, Fahmi Fadzil, wrote in a Facebook post in April, according to Fortune.

Structural problems could limit how far that goes. Guanie Lim, an associate professor at Japan's National Graduate Institute for Policy Studies, told Fortune that Malaysia has mostly locked in its existing, lower-paying niche in chip manufacturing, which relies on cheap labor rather than advanced technology. Aging populations and skilled workers leaving for Singapore or the West could shrink that labor advantage further, Fortune reported, noting Malaysia is projected to become an "aged nation" by 2048. Strained power grids and water shortages are also slowing data center construction across the region, Ramkishen Rajan, a professor at the same Singapore school, told Fortune.

Squeezed Between Washington and Beijing

Geopolitics adds a second complication. Reuters reported this month that the United States is preparing to push dozens of countries to commit to its AI framework, Pax Silica, rather than China's rival World Artificial Intelligence Cooperation Organization, or WAICO, according to Fortune's account of that reporting. A draft State Department letter cited by Reuters warned that joining both blocs was not an option: "To be part of everything is to be part of nothing."

The South China Morning Post reported that Chinese officials lobbied Southeast Asian nations to join WAICO before its launch last month, offering "exclusive privileges" to founding members and casting the US-led initiative as exclusionary, according to sources described by the newspaper. Denis Hew, a senior research fellow at the Lee Kuan Yew School, told Fortune the rivalry threatens an economic model Southeast Asia has relied on for decades: openness to investment and partners from multiple sides at once.