China has an explicit national policy to build high bandwidth network connections across the arid Western half of the country called the digital silk road. And on the scale of China's other projects in the west (e.g. mining, large scale agriculture, chemical plants), the water usage of a data center or ten is a rounding error.
I don't know if they're actually building AI DCs out there, but it doesn't seem completely unreasonable like you're suggesting.
Of course it doesn't seem completely unreasonable to build out power distribution, cooling, and high-bandwidth network interconnects throughout a region, but once you've done that, you are no longer facing the empty, barren desert scenario.
So if China builds out infrastructure that can be maintained in perpetuity, then more power to them, and the NIMBYs won't have a leg to stand on.
Conversely, in these United States, I've seen literal tons of data centers being plonked into urban centers: literally at intersections where lots of people drive by in daily commutes, there are data centers now where there weren't before, and they are also found on the outskirts of civilization, because they require more security than accessibility. So data center siting can take multiple factors into account here, depending on their purpose.
And can we please stop hammering on the "AI Data Center" meme, because in my experience, a DC is a DC, whether they choose to make it AI or not AI, they're probably all AI from now on, but it just adds fuel to the Luddite fires to say so...
I don't know if they're actually building AI DCs out there, but it doesn't seem completely unreasonable like you're suggesting.