Compliance-driven integration: data localization regulations and China-ASEAN digital connectivity

Conventional wisdom holds that data localization regulations fragment digital connectivity by restricting cross-border data flows. This paper challenges that view: China’s data sovereignty framework and diverse Southeast Asian data regulations have paradoxically deepened regional digital integration. We introduce compliance-driven integration: a pathway in which regulatory restrictions stimulate infrastructure investment that enables connectivity while preserving state sovereignty. China’s data localization rules incentivize cloud platforms to establish distributed data centers abroad, while Southeast Asian regulations channel this expansion into jurisdiction-specific deployments. Although regulated data remain in designated facilities, dispersed data centers require continuous cross-border coordination, including software updates, content delivery, and supply chain management, generating non-regulated bandwidth demand. Co-investment consortia and colocation arrangements safeguard host state sovereignty while enabling connectivity. Infrastructure expansion precedes and shapes institutions: the Regional Comprehensive Economic Partnership, the ASEAN-China Free Trade Area 3.0 and ASEAN Digital Economy Framework Agreement increasingly accommodate regulatory diversity rather than mandate harmonization. Using a comprehensive dataset spanning 2005 to 2025, we show that ASEAN’s share of China’s global bandwidth grew nearly fivefold from 10.6% to over 50%. China-ASEAN bandwidth expanded more than tenfold between 2017 and 2025, after localization regulations took effect. Regulatory diversity need not produce fragmentation when infrastructure-mediated arrangements enable connectivity.