Demand for cloud services in China increases to quarterly record high of US$4.3 billion

The market is being driven by government stimulus measures, investment by service providers, digital transformation projects and increased demand for online services
Second-quarter cloud spending in China accounted for 12.4 per cent of the US$34.6 billion total global investment during that period

China technology

Iris Deng

Published: 4:30pm, 9 Sep 2020

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China maintained its position as the world’s second-largest cloud services market amid record spending of US$4.3 billion in the second quarter, fuelled by increased demand for online services during the Covid-19 pandemic and government stimulus measures, according to a report.

That marked a 70 per cent increase from a year ago, led by domestic cloud infrastructure services spending on Alibaba Cloud, according to research firm Canalys in a report on Wednesday.

Alibaba Cloud, the digital technology and intelligence backbone unit of e-commerce giant Alibaba Group Holding, had a 40.1 per cent market share in the second quarter. Alibaba is the parent company of the South China Morning Post.

“Momentum in China’s cloud infrastructure services market is set to accelerate,” Canalys analyst Blake Murray said in the report. “An already growing market is being propelled by government initiatives, commitment by cloud service providers to invest, as well as increasing demand for digital transformation and online services in the post-Covid-19 economy.”

Cloud computing adoption accelerates in China as economy recovers from coronavirus pandemic

Second-quarter spending on cloud services in China accounted for 12.4 per cent of the US$34.6 billion total global investment during that period, data from Canalys showed. The US, home to industry leaders Amazon Web Services (AWS), Microsoft Azure and Google Cloud, was still the world’s top market for cloud infrastructure services.

Cloud computing services enable companies to buy, sell, lease or distribute a range of software and other digital resources as an on-demand service over the internet, just like electricity from a power grid. These resources are managed inside data centres.

China’s accelerated adoption of cloud services last quarter is a testament to the increased demand for online collaboration and remote working tools, e-commerce, remote learning and content streaming as the country emerged from coronavirus lockdown.

That record growth also reflected the rising number of digital transformation projects by enterprises, following Beijing’s directive to speed up the roll-out of digital infrastructure across China. In May, the central government pledged to invest an estimated 10 trillion yuan to establish new digital infrastructure over six years to 2025.

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“Opportunity and demand resulting from the fallout of the pandemic has only fuelled enterprise commitment,” said Matthew Ball, Canalys chief analyst.

Huawei Cloud, a unit of telecommunications equipment maker Huawei Technologies, ranked second behind Alibaba Cloud in terms of market share in China for the second consecutive quarter, according to Canalys. Huawei Cloud had a 15.5 per cent share in the June quarter, up from 14.1 per cent in the March quarter.

Tencent Cloud, a unit of Tencent Holdings, ranked third with a 15.1 per cent domestic market share last quarter, compared with the previous quarter’s 13.9 per cent share.

Baidu AI Cloud, a unit of the country’s largest internet search service, saw its market share basically unchanged at 8 per cent last quarter.

“Differentiation of cloud services offered, and execution of strategies will be important in the coming year,” said Murray of Canalys. He predicted “fierce competition” among China’s major cloud services providers.

Alibaba Cloud has stepped up to the challenge, with a plan to invest 200 billion yuan (US$29.2 billion) to build up its infrastructure in the next three years. The company was the world’s third biggest cloud infrastructure services provider last year, behind AWS and Azure, according to research firm Gartner.

This article appeared in the South China Morning Post print edition as: China keeps No 2 rank for cloud services

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