U.S.-China AI Rivalry and the Pressure on Southeast Asia to Choose a Tech Bloc: An Analysis of the Pax Silica–WAICO Competition

Executive Summary

Amid the coexistence of the U.S. State Department's Pax Silica initiative and China's WAICO, Washington is attempting to curb the hedging strategies of Southeast and Central Asian nations through a draft letter demanding exclusive participation. However, whether and when the letter will be sent remains undecided. The case of Malaysia, which is leaning toward adopting Huawei chips despite U.S. opposition, suggests that this demand for exclusivity may be difficult to enforce. Countries like Singapore and Kazakhstan are upholding ASEAN's distinct non-aligned tradition through hedging diplomacy, avoiding direct answers and evaluating the issue within the context of their overall relationships. These developments suggest that continued selective pressure limited to security-related items is more likely than a complete hardening of technological blocs. For the South Korean government and companies, a dual-track strategy is required: maintaining the current stance in areas subject to U.S. export controls, such as advanced semiconductors and foundation models, while avoiding a premature consolidation of supply chains in general commercial domains like local data centers and cloud services in Southeast Asia.

I. Analysis of the Current Situation

U.S.-China AI Rivalry and the Pressure on Southeast Asia to Choose a Tech Bloc

1. Background and Developments

The U.S. State Department launched the Pax Silica initiative in December 2025. The initiative aims to reduce dependence on China in AI infrastructure supply chains, including semiconductors, rare earth elements, and data centers [14]. Coordinated by the State Department, it was launched as a non-binding declaration [6]. The State Department subsequently held the first summit, followed by a second Pax Silica summit in June of this year [6].

In response, China established the World Artificial Intelligence Cooperation Organization (WAICO) this past July [15]. A former Indonesian trade minister assessed that ASEAN is being "pulled in different directions" between these two initiatives [15]. Many Southeast and Central Asian countries have pursued a diversification strategy by participating in both Pax Silica and WAICO. Kazakhstan is a prime example; it is the only country in the world to have joined both competing frameworks [5].

A draft State Department letter, reported by Reuters in August, has put the brakes on this straddling strategy. The draft warns Pax Silica participants to refrain from parallel participation in competing initiatives [1]. According to The Astana Times, the draft letter requires countries wishing to join Pax Silica to commit exclusively to the U.S.-led initiative [8]. However, it is reported that Washington has not yet decided whether or when to actually send the letter [8].

2. Current Situation

Singapore is at the forefront of this pressure. Minister for Digital Development and Information Josephine Teo disclosed in Parliament that Singapore has been invited to join WAICO [11]. The South China Morning Post reported that Singapore will review the offer in the context of its overall relationship with China and other international AI cooperation initiatives [11]. The same outlet also reported analysts' concerns that joining WAICO could give Singapore a voice but might affect its role within Pax Silica [11].

Malaysia appears to have already made a practical choice. According to a Business Times report, Malaysia is leaning toward adopting Huawei's AI semiconductors as the cornerstone of its sovereign AI project, despite strong U.S. opposition [13]. This $494 million project aims to strengthen Malaysia's domestic control over its AI capabilities [13]. The fact that this decision is being made despite strong opposition from the Trump administration shows that Southeast Asian nations have little incentive to accept U.S. demands for exclusive participation [13].

Local experts offer conflicting assessments regarding Kazakhstan. The Astana Times reported an expert view that Kazakhstan's balanced AI strategy could challenge the outdated logic of bloc competition itself [8]. This reflects the will of Central Asian countries to stick to a path of diversification rather than succumbing to pressure to choose between the U.S. and China [5].

The case of Trinidad and Tobago shows that this pressure is not limited to Southeast and Central Asia. The Chinese Embassy in Trinidad and Tobago publicly warned the United States not to interfere in its technology partnerships [18]. This suggests that Washington's demand for exclusive participation is extending to the Caribbean region.

3. Key Actors and Positions

U.S. State Departmentseeks to lock allied and partner nations' AI technology stacks into U.S. standards through Pax Silica [14]. The Brookings Institution assesses this as an effort by Washington to tie other countries to the American AI tech stack [14]. Treasury Secretary Besant openly expressed a sense of crisis, stating, "If China wins the AI race, nothing else will matter" [16]. He remarked that even the massive U.S. defense budget would not be able to protect the country in that scenario [16]. This statement is also interpreted as being mindful of public backlash within the U.S. over data center construction [16].

Chinais using a dual tactic of building its own bloc through WAICO while immediately protesting U.S. interference with individual countries through diplomatic channels [18]. The Nihon Keizai Shimbun reported that the U.S. and Chinese leaders are exploring the possibility of discussing AI safeguards, but it also noted that skepticism about the potential for substantive cooperation prevails within Silicon Valley [17].

Singaporefaces a structural dilemma, having to simultaneously consider its security and economic ties with the United States and its economic interdependence with China [11]. Malaysiais practically leaning toward Huawei semiconductors, prioritizing cost and accessibility, thereby choosing not to heed U.S. warnings [13]. Kazakhstanas the only country to have joined both blocs, has become a test case for the diversification strategy [5].

ASEAN Member States Overallare more concerned about regional resilience being undermined by getting caught up in the bloc competition than about the competition itself. The former Indonesian trade minister's remarks reflect the view that ASEAN's challenge is "to build resilience against global geopolitics" [15].

4. Key Issues

The first issue is whether the letter will actually be sent and its enforceability. The State Department has not yet confirmed a date for sending it [8]. It is also possible that the demand for exclusive participation will remain an unwritten means of pressure rather than being formalized in a document.

The second issue is the actual response of individual countries. Given cases like Malaysia, which has already moved toward adopting Huawei, it will be difficult to reverse such decisions even if the letter is actually sent [13]. For countries like Singapore that have yet to make a decision, the letter could be a significant variable [11].

The third issue is the scope of this pressure's impact on investment decisions for semiconductors and data centers. A previous EAI analysis assessed that, given U.S. infrastructure superiority and the limited appeal of Chinese alternatives, "the most likely scenario, with a 55-60% probability, is the continuation of selective decoupling limited to security-related items" [3]. The cases in Southeast and Central Asia support this assessment while also showing that, at the individual country level, pressure for full alignment remains a real factor.

II. In-Depth Analysis

U.S.-China AI Rivalry and the Pressure on Southeast Asia to Choose a Tech Bloc

1. Analysis of Root Causes

At the root of this pressure via the letter is the structural scale of U.S. superiority in AI infrastructure. The United States operates 5,427 data centers, more than 10 times the number of any other country [3]. This gap was created by the scale of private investment. From 2013 to 2023, cumulative private AI investment in the U.S. reached $335.2 billion, while China lagged significantly behind [10]. From Washington's perspective, Pax Silica is a means to institutionalize this advantage. U.S. Treasury Secretary Besant said, "If China wins this race, there is no tomorrow" [16]. He warned that even America's vast defense budget could not prevent this outcome [16]. This statement shows how strongly the AI competition is viewed as an existential threat within Washington.

The timing of the demand for exclusive participation is also linked to these root causes. Pax Silica was launched last December as a non-binding declaration [6], essentially starting as a multilateral platform with no enforcement power. However, the situation changed when China established WAICO this past July [15]. When countries like Kazakhstan began joining both sides, Pax Silica's lack of binding commitment appears to have been perceived by Washington as a strategic loophole. The fact that the draft letter emerged after WAICO's launch suggests that this pressure is a response to China's alternative initiative [5][8].

China's motivation is to secure markets for its technology. Huawei is trying to expand its foothold in the data center market from Southeast Asia to the Middle East [13]. The strong consideration of Huawei semiconductors for Malaysia's $494 million sovereign AI project shows that these attempts are yielding tangible results [13]. From Beijing's perspective, WAICO is a channel to bypass markets blocked by semiconductor export controls.

2. Structural Context

Politically, this issue directly clashes with ASEAN's distinct tradition of non-alignment. A former Indonesian trade minister assessed that ASEAN is being "pulled in different directions" between Pax Silica and WAICO [15]. Since the Cold War, ASEAN has adopted equidistant diplomacy between major powers as a guiding principle for the regional organization. This principle is now being tested on the new battlefield of AI infrastructure. The case of Singapore illustrates this well. Minister for Digital Development and Information Josephine Teo, while disclosing the WAICO invitation in Parliament, stated that it would be reviewed "in the context of the overall relationship" with China and other international AI cooperation initiatives [11]. This rhetoric of avoiding a direct answer is typical of Singapore's hedging diplomacy.

Economically, the dual structure of semiconductor supply chains is an obstacle. Malaysia is leaning toward adopting Huawei's AI semiconductors as the core of its sovereign AI project, despite strong U.S. opposition [13]. This should be seen not as a mere political gesture but as the result of practical considerations of cost and procurement feasibility. While the U.S. tech stack leads in performance and ecosystem, the relative appeal of the Huawei alternative grows for countries with limited access due to export controls.

In terms of the security structure, the physical facilities of data centers themselves have emerged as a vulnerability. This past March, three Amazon Web Services (AWS) data centers in the Middle East were damaged by drone attacks during Iran's "Operation Epic Fury" [12]. The damage included structural harm, power outages, and additional water damage from the activation of fire suppression systems [12]. This incident highlighted that building overseas data centers is not merely a commercial investment but constitutes the deployment of security assets. This security-linked perception is also part of the reason why the U.S. is demanding exclusive participation in its allies' infrastructure.

3. Comparison with Historical Precedents and Similar Cases

Kazakhstan's case of dual membership exists under fundamentally different conditions than the Non-Aligned Movement of the Cold War era. The Non-Aligned Movement maintained equidistance by refusing to join military alliances. In contrast, AI infrastructure is locked into tangible assets like physical data centers, semiconductor supply lines, and cloud standards. Once infrastructure is built on a specific stack, the enormous switching costs make it harder to leave than a military alliance. The assessment from local experts reported by The Astana Times—that Kazakhstan's balancing strategy "can challenge the outdated logic of bloc competition itself" [8]—contains optimism that diversification is still possible, but it is difficult to say it fully reflects the practical constraint of infrastructure lock-in.

The case of Trinidad and Tobago demonstrates the geographical spread of this pressure. The fact that the Chinese Embassy publicly warned against U.S. interference in its technology partnerships [18] means this conflict is spreading beyond the regional boundaries of Southeast and Central Asia to the Caribbean. This is similar to the pattern of U.S.-Soviet competition during the Cold War, which spread throughout the Third World in the form of proxy wars. However, the nature of the means is different this time, as it involves economic tools like semiconductor export controls and enforced standards rather than military intervention.

The Brookings Institution has pointed out that the risks faced by middle powers like Europe, Japan, and South Korea "go far beyond technological dependence" [2]. The assessment is that the country controlling leading AI assets will come to define the very conditions for other countries' participation in the global economy and international politics [2]. This means it could have far more comprehensive repercussions than the U.S.-Japan friction over semiconductor hegemony in the 1980s or the U.S.-China conflict over 5G standards and Huawei in the 2010s. Whereas past tech hegemony struggles were confined to specific products or standards, the current AI infrastructure competition is structurally different in that it is an all-encompassing stack competition covering data centers, power, semiconductors, and models.

4. Key Variables Shaping Future Developments

The first variable is whether and when the letter is actually sent. According to The Astana Times, Washington has not yet decided whether or when to actually send the letter [8]. As long as it remains in the draft stage, countries have a strong incentive to wait and see while continuing their dual memberships. The moment it is actually sent and exclusive participation is stipulated as an official condition, countries pursuing diversification, including Kazakhstan, will be forced to choose.

The second variable is the domestic political reaction in individual countries. Singapore chose transparency by disclosing the WAICO invitation in Parliament [11]. This can be seen as a move made with an awareness of domestic public opinion and opposition party scrutiny. In contrast, Malaysia is leaning toward adopting Huawei semiconductors, effectively defying U.S. opposition [13]. This variation in individual country responses suggests that it will be difficult for ASEAN as a whole to adopt a unified stance in the future.

The third variable is whether the U.S.-China AI safety dialogue scheduled for September takes place and what its nature will be. Nikkei Asia reported on the possibility of AI safeguards being on the agenda at a Trump-Xi Jinping summit [17]. However, skepticism about the possibility of bilateral cooperation remains prevalent among figures in Silicon Valley [17]. The room for maneuver for Southeast and Central Asian countries will depend on whether this dialogue results in a limited agreement on risk management or becomes an opportunity to ease inter-bloc tensions.

The fourth variable is the growing awareness of security risks related to data centers. As shown by the attack on AWS facilities in the Middle East, there is a growing recognition that overseas infrastructure investments can become targets of physical attacks [12]. As these security concerns grow, the United States is likely to demand stronger exclusive control over allied infrastructure. Conversely, countries might prefer diversified supply lines to mitigate security burdens, so it is still difficult to determine which way this variable will cut.