China’s cloud infrastructure spending hits record growth

Cloud infrastructure services spending in China grew 62% in the fourth quarter of 2020 to reach $5.8bn, the highest growth ever recorded, indicating robust demand for cloud services in the country.

According to market research firm Canalys, total expenditure increased by $2.2bn compared with the same period last year. This was fuelled by digital transformation efforts amid the pandemic, as well as China’s rapid economic recovery and the subsequent restart of delayed projects.

China’s appetite for cloud infrastructure services continued to outpace the rest of the world, with the government making it one of its top strategic priorities.

Overall, it was the second-largest market after the US, accounting for 14% of global investment, up from 12% in the fourth quarter of 2019. The top four cloud service providers in China were Alibaba Cloud, Huawei Cloud, Tencent Cloud and Baidu Cloud, which collectively accounted for over 80% of total spending.

For the whole of 2020, total cloud infrastructure services spending in China grew 66% to $19bn, up from $11.5bn in 2019.

“Remote learning and working, as well as gaming, streaming, e-commerce and other online services, were key areas driving consumption of cloud infrastructure services in China throughout 2020,” said Canalys chief analyst Matthew Ball.

“Cloud service providers also played a pivotal role in developing digital services to support organisations in overcoming challenges caused by the Covid-19 pandemic, and these relationships will lead to larger transformation projects going forwards.

“In the coming year, consumption of cloud services will maintain robust growth, driven by continued expansion of online services and digitisation of processes and operations within enterprises and government organisations,” Ball added.

Alibaba Cloud was the market leader, with a 40% share. Besides reporting growth in the internet, retail and public sectors, the top cloud supplier has also been focusing on hybrid cloud with the launch of its hybrid cloud partner programme in 2021.

In second place was Huawei Cloud, with a 17% market share. It made progress with e-government clouds, as well as internet, genomics, automaker and financial services customers, while expanding its ecosystem of consulting partners and developers.

Huawei also launched its cloud-native 2.0 initiative to support cloud-native development within enterprise and government customers.

Tencent was third, with 15% share, having seen rising demand in government, finance, healthcare and education sectors. Enterprise expansion was also a key focus, with developer enablement initiatives to help identify and deploy cloud-native services.

Baidu was the fourth-largest cloud service provider, accounting for 8% of total spending in the fourth quarter of 2020, thanks to its traction in the government, enterprise, internet, transportation, healthcare and financial sectors.

Baidu and China Huaneng Group, a state-owned electricity company, recently signed a memorandum of understanding aimed at transforming the energy sector. Baidu will leverage its capabilities in artificial intelligence (AI) powered infrastructure to help Huaneng closely integrate the digital economy with the energy and power industry to enhance efficiencies and user experience.

“Customers are requiring more advanced solutions from cloud service providers to meet data security requirements and other industry-specific needs. The pace of innovation is accelerating in China as customers become more integrated and dependent on cloud-based services, particularly for AI and data processing. This is accelerating the development of datacentre capacity, connectivity and data services,” said Blake Murray, a research analyst at Canalys.

“This year will bring a growing opportunity for cloud service providers to demonstrate value across specific industries and across specific complexities of hybrid cloud and cloud-native deployments. Demonstrating value will remain critical to building trust between customers and cloud service providers while innovation will drive the competitive edge between providers,” he added.