The Hottest Problem in AI: Why China’s Liquid-Cooling Surge Could Reshape the Global Data Center Industry

For decades, the semiconductor chip was the undisputed bottleneck of computing power. Nations waged trade wars over fabrication technology, and billions were poured into securing supply chains for the tiny silicon wafers that power artificial intelligence. But as AI models balloon in size and complexity, a different constraint is emerging — one measured not in nanometers but in kilowatts and degrees Celsius. The challenge of keeping data centers cool enough to function has become one of the most consequential infrastructure problems of the AI era, and Chinese manufacturers are racing to own the solution.

As reported by the South China Morning Post,

Chinese companies are moving aggressively into liquid-cooling technologies as hyperscale data centers push against their thermal limits. The pivot is not merely incremental — it represents a strategic industrial bet that cooling infrastructure could become as critical to AI dominance as the chips themselves.

From Air to Liquid: A Thermal Reckoning for AI Infrastructure

The physics are unforgiving. Traditional air-cooling systems, which have served data centers adequately for decades, are buckling under the thermal demands of modern AI accelerators. Nvidia’s latest GPU racks can consume upwards of 120 kilowatts per rack, a figure that makes conventional cooling architectures obsolete. When thousands of these processors are packed into warehouse-sized facilities running inference and training workloads around the clock, the heat generated is staggering — and the energy required to dissipate it threatens to consume nearly as much power as the computation itself.

Liquid cooling, which circulates fluid directly to or near heat-generating components, can be up to 3,000 times more efficient at transferring thermal energy than air. The technology comes in several forms: direct-to-chip cooling, where cold plates sit atop processors and carry heat away through circulating coolant; rear-door heat exchangers, which capture exhaust heat at the rack level; and full immersion cooling, where entire servers are submerged in dielectric fluid. Each approach offers dramatically better thermal performance than blowing cold air through server aisles, and each is now the subject of intense commercial competition in China.

China’s Manufacturing Machine Turns Its Attention to Thermal Solutions

According to the South China Morning Post, major Chinese technology firms and specialized manufacturers are scaling up liquid-cooling production capacity at a pace that mirrors the country’s earlier buildouts in solar panels and electric vehicles. The report highlights that companies across China’s supply chain — from component makers to full-system integrators — are positioning themselves to serve both domestic hyperscalers and international clients hungry for next-generation thermal management.

The timing is hardly coincidental. China’s AI ambitions have not been dampened by U.S. export controls on advanced semiconductors. If anything, restrictions on cutting-edge chips have intensified Beijing’s focus on the adjacent technologies that make AI infrastructure viable. Cooling systems, power distribution, and data center design are areas where Chinese firms face no comparable trade barriers and where manufacturing scale can translate directly into global market share. The strategic logic is clear: if you cannot make the most advanced chips, dominate everything around them.

The Economics of Heat: Why Cooling Has Become a Boardroom Priority

The financial stakes are enormous. Data center operators worldwide are projected to spend tens of billions of dollars annually on cooling infrastructure over the next decade. Energy costs already represent the single largest operating expense for most facilities, and cooling accounts for a substantial share of that energy consumption. A facility that can reduce its cooling energy by 30 to 40 percent through liquid-cooling adoption gains a significant competitive advantage — not only in operating costs but in the density of computing power it can deploy per square foot.

This is why hyperscalers like Microsoft, Google, Amazon, and their Chinese counterparts including Alibaba, Tencent, and ByteDance are all investing heavily in liquid-cooling deployments. Nvidia itself has been vocal about the necessity of liquid cooling for its next-generation hardware. The company’s GB200 NVL72 system, a rack-scale AI supercomputer, was designed from the ground up to require liquid cooling — a signal that the industry’s most influential chipmaker views the technology not as optional but as essential. For data center operators, the message is unambiguous: the era of air-cooled AI is ending.

A Supply Chain Arms Race With Global Implications

Chinese manufacturers bring formidable advantages to this competition. The country’s deep bench of precision manufacturing capabilities, honed over decades of producing electronics, automotive components, and industrial equipment, translates naturally to the production of cold plates, manifolds, pumps, and coolant distribution units. Labor costs remain competitive, and the domestic market provides a massive proving ground for new technologies before they are exported.

Companies like Auras Technology, Cooler Master, and a growing roster of specialized Chinese firms are expanding production lines dedicated to data center thermal solutions. Meanwhile, established players in the server and infrastructure space — including Inspur, Sugon, and Lenovo — are integrating liquid-cooling capabilities into their product portfolios. The result is a rapidly maturing ecosystem that spans the full stack from components to turnkey cooling solutions.

Geopolitical Dimensions of a Seemingly Technical Problem

The geopolitical implications deserve careful scrutiny. Washington’s chip export controls were designed to limit China’s access to the most advanced AI hardware, but they did not anticipate — or perhaps could not address — the possibility that China would build dominance in the enabling infrastructure that makes those chips useful. A world in which Chinese companies supply the majority of liquid-cooling systems for global data centers would give Beijing significant leverage over the AI supply chain, even without manufacturing a single leading-edge GPU.

This dynamic echoes earlier patterns in clean energy, where Chinese manufacturers came to dominate global solar panel and battery production despite not inventing the core technologies. The playbook is familiar: identify a critical technology with massive scaling potential, invest aggressively in manufacturing capacity, drive down costs through volume, and capture market share before competitors can respond. Applied to data center cooling, this strategy could yield similarly outsized results.

Technical Hurdles and the Road to Mainstream Adoption

For all its promise, liquid cooling is not without challenges. Retrofitting existing data centers designed for air cooling requires significant capital expenditure and operational disruption. Facility operators must install new plumbing, pumps, and coolant distribution infrastructure — work that can take months and demands specialized expertise. There are also concerns about coolant leaks, maintenance complexity, and the long-term reliability of systems that introduce fluids into environments traditionally kept bone-dry.

Immersion cooling, the most radical approach, faces additional adoption barriers. Submerging servers in dielectric fluid changes virtually every aspect of how hardware is deployed, maintained, and serviced. Technicians cannot simply slide a server out of a rack and swap a component; instead, they must extract equipment from a fluid bath, a process that introduces new workflows and training requirements. Despite these obstacles, proponents argue that the thermal and energy benefits are so substantial that adoption is a matter of when, not if.

What Comes Next for the Industry’s Thermal Frontier

Industry analysts project that the global liquid-cooling market for data centers could exceed $15 billion annually by the end of the decade, driven by the relentless growth of AI workloads and the physical impossibility of cooling next-generation hardware with air alone. Chinese manufacturers, already scaling production and driving down costs, are well positioned to claim a disproportionate share of that market.

The broader lesson may be that in the AI era, dominance is not determined solely by who makes the most advanced chips. It is increasingly shaped by who can build, power, and cool the infrastructure that makes those chips productive. As the thermal demands of artificial intelligence continue to escalate, the companies and countries that solve the heat problem will wield influence far beyond the server room. China, it appears, has recognized this reality — and is moving with characteristic speed to capitalize on it.