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ASIA'S FUNDING THE AI BOOM AS WELL AS BUILDING THE HARDWARE

The pattern of the AI boom is clear so far: Asia produces most of the hardware, and sells it to the U.S., the most aggressive builder of data centres, which is spending hundreds of billions of dollars.

But HSBC's Chief Asia economist Fred Neumann points out, a lot of that money actually originates in Asia too, "a form of vendor-financing," he says, with his tongue edging into his cheek.

Asia as a whole, Neumann says "is the source of close to half of net cross-border funding globally. Assuming a proportionate distribution across the world, that implies that nearly half of US net international borrowing comes from Asia."

Yes, a lot of that goes into Treasuries but equity flows into the U.S. now exceed flows into bonds, "So: not only is Asia in large part responsible for indirectly funding the US AI capex spree — via Treasuries — but also directly by purchasing equities — in large part of AI firms."

The question then is how long can that last. If AI is an economic game-changer then Asia will have to start building data centres too — Neumann says to match the U.S. level of investment relative to GDP would require $860 billion in funding.

And that money would have to come from somewhere, likely domestic savers.

As he says AI could be so big it could lead to Asia keeping more of its money at home, a fundamental economic shift.

(Alun John)

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