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China’s Cloud Infrastructure Services On The Rise

China’s investment in cloud infrastructure services jumped 55% in Q1 2021, reaching US$6.0 billion. While a disruption slowed down the Chinese cloud service providers’ businesses, the cloud services growth in China continued to outpace the rest of the world. The government continues to support this industry by making it a top strategic priority.

Key factors fueling big investment in cloud included rapid economic growth and an increased focus on digital transformation following the COVID-19 pandemic. Overall, China was the second-largest market accounting for 14% of global investment.

Digital services, including digital payments and content, customer and social engagement as well as remote learning, are key drivers behind the demand for cloud infrastructure services in China. One year on from the start of the COVID-19 pandemic, cloud service providers in the country have enabled the acceleration of the government’s and other organisations’ digital agendas, while compressing multiple years of transformation plans into much shorter timeframes.

The cloud providers were able to build critical relationships with customers early in the pandemic to support rapid digital transformation. Now they are investing heavily to increase their capacity, develop cloud-based databases, storage and compute capabilities to replace on-premises Information Technology (IT) infrastructure, enable a broad developer ecosystem for cloud-native development, and extend cloud and Artificial Intelligence (AI) to all industries.

Some cloud computing company led the market in China but its growth slowed to 38% in the quarter due to the large customer terminating its contract to adhere to data sovereignty requirements outside of China. Another cloud company made the most gains during the quarter, growing 116% to take a 20% market share. It grew strongly because of internet customers and government projects, as well as key wins in the automotive sector. The company is currently building its largest data centre facility in Gui’an to provide services in Southwest China.

The third company has a 14% share in China’s market. Its cloud services expanded in healthcare, retail, education and transportation. It also increased its focus on enterprise opportunities by establishing a Software as a Service (SaaS) ecosystem program and launching the Enterprise App Connector to simplify the management of multiple SaaS products. The fourth-largest cloud service provider accounts for 7% of total spend in Q1 2021. It had ongoing success with large financial service customers, and also grew in the government, enterprise, Internet, transportation and healthcare sectors.

Cloud services will likely flourish this year in China due to the continued expansion of online services, digitalisation of processes and operations, and investment across industries, enterprises and government sectors. This will increase use cases and heighten the value proposition of cloud services. Chinese providers will also extend their reach beyond the domestic market and export their cloud services worldwide to accelerate digital transformation in other parts of the Asia Pacific region, and Europe, the Middle East and Africa.

However, the providers will have to meet the ongoing challenges presented by local data sovereignty laws and highly customised industry-specific needs. Attracting local developer ecosystems, enabling SMBs to adopt cloud services and working with governments, in addition to building data centres, will be critical to their success.

Investing in cloud services is one of the strategies for China to be a leader in science and technology and achieve self-reliance and self-strengthening at higher levels, as reported by OpenGov Asia. Scientific and technological development must target the global sci-tech frontiers, serve the main economic battlefields, strive to fulfil the significant needs of the country and benefit people’s lives and health.

Scientists and engineers must closely follow current trends, take the initiative, confront problems head-on, and overcome difficulties. These areas have been placed at the core of China’s overall development. Its progress in sci-tech innovation, basic research, original innovation, strategic sci-tech and high-end industries is well known.

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