China’s cloud computing market loses steam in first quarter, but generative AI demand offers a silver lining

Spending on cloud infrastructure services in China rose 6 per cent in the three months to March, the third consecutive quarter of single-digit growth
The end of remote work arrangements reduced demand for cloud services, but demand is rising for a variety of new ChatGPT-like AI services

Artificial intelligence

Iris Dengin Shenzhen

Published: 6:00pm, 15 Jun 2023

Why you can trust SCMP

China’s cloud computing market growth slowed to a relatively sluggish 6 per cent in the first quarter this year, as demand for online work platforms waned in the post-pandemic era, while the rise of ChatGPT-like artificial intelligence (AI) tools signalled a way forward.

Spending on cloud infrastructure services saw its third consecutive quarter of single-digit growth, reaching US$7.7 billion in the first three months of the year, according to a report from research firm Canalys on Thursday. China accounted for 12 per cent of the global market, down from 13 per cent a year earlier.

The lacklustre results for an industry that has been a star performer in recent years comes after the country lifted its strict Covid-19 control measures that many hoped would help lift the economy. But it also meant lower demand for online meetings and remote work tools, according to Canalys. Businesses are more cautious with tech spending and investment, as well, amid a weak macro-environment.

Alibaba Cloud wins deal with coal giant in bid to woo state-owned firms

Demand for generative AI and the models that power it, on the other hand, is expanding following the explosion of interest in OpenAI’s ChatGPT. The technology is expected to drive new growth opportunities in the cloud computing market, Canalys said in the report.

Major cloud service providers in China have been ramping up their offerings of conversational AI products for users and a variety of AI models for enterprise clients. In April, Chinese e-commerce giant Alibaba Group Holding, owner of the Post, launched its own large language model (LLM) Tongyi Qianwen for use in multiple industries. That same month, Huawei Technologies launched Pangu AI for enterprise use.

The Chinese government is also doubling down on its efforts to boost computing power to help accelerate domestic AI development amid a growing technological rivalry with the US.

China now has the second-most computing power in the world at 180 exaflops, a measure of performance based on computations per second, Liu Yulin, an official at China’s Ministry of Industry and Information Technology, said at a conference in Shanghai on Wednesday. The country also has more than 20 million servers, with over 1,000 exabytes of storage capacity, according to Liu.

Cloud computing has been a bright spot for many of China’s tech giants that have been grappling with a slowing economy.

Alibaba Cloud, a unit of Alibaba currently preparing for an initial public offering, leads the industry in China, but it saw revenue shrink for the first time in the first quarter, according to Canalys. It accounted for 34 per cent of the market with US$2.6 billion in revenue for the period, US$80 million less than in the first quarter of 2022.

04:12

How Huawei's use of 5G and AI is transforming China’s coal mining industry

Huawei Cloud ranked second with 20 per cent market share. It grew 11 per cent for the quarter, as the telecommunications equipment maker has expanded aggressively in the space in search of new revenue streams in the face of US sanctions that hobbled its once lucrative smartphone business.

Tencent Holdings’ cloud unit ranked third with 17 per cent of the market. The company announced in May that it would offer discounts from this month of up to 40 per cent for cloud server, database and security products.

That move followed other price reductions from rivals as they try to weather the slowing market. Alibaba Cloud cut prices in May by as much as 50 per cent for domestic clients and 40 per cent for global partners.

“When there is a lack of incremental market demand, reducing prices can appeal to price-sensitive customers,” Canalys analyst Yi Zhang said.

Post