17th October 2011
The third and final installment in our series on emerging markets takes us to China, and an assessment of the rising cloud computing industry within one of the world’s mightiest, yet most reticent, nations. Can a technology infrastructure as potentially open as the cloud really prosper in the land of the Great Firewall? Actel Consulting’s Shervin Bakhtiari reports directly from Shanghai.
China’s cloud computing developmentIn late 2010, the Chinese government announced their 12th Five Year Development Plan outlining their plans for social and economic development for 2011 – 2015, and designating next-generation Information Technology as one of seven “Strategic Emerging Industries”.
These industries will receive special investment and development to create the basis of China's long-term economic growth and home-grown innovation. Cloud Computing was highlighted as one of the key investment areas within next generation IT for development of new digital technology and infrastructure.
Under the supervision of the China Ministry of Industry & Information (MIIT), five research centers in Beijing, Hangzhou, Shanghai, Shenzhen, and Wuxi were designated to launch the initial development and innovation for cloud computing.
Many provincial or special city governments such as Chongqing, Shandong, Shanghai and others have also announced large data center and cloud computing investments and projects with price tags in the hundreds of millions of US dollars. China Mobile, China Telecom and China Unicom have all also expanded their cloud computing research and development centers as well as joint projects with provincial and city governments.
The Asia Cloud Computing Association reports that investment in Cloud computing projects in China is expected to reach US$154 billion over the coming few years. According to KPMG, China Mobile on its own has planned investments of $52 billion over the next three years to expand its cloud offering nationwide.
Of course, all of these government designations and investment announcements have made cloud computing a very hot topic in China, creating great revenue and project opportunities for cloud computing technology vendors, most of whom are international companies.
However, MIIT is assisting domestic technology companies by providing assistance in research, planning, and guiding their technology and product roadmaps to make them more competitive in local and global markets against the international players.
A challenge with any government investment, in China or elsewhere, is its effectiveness to drive true innovation and development of new solutions, rather than just development of infrastructure. Government investments generally tend to favor large companies (or state-owned companies in China) and these companies are not always at the forefront of innovation. Chinese central and local government have tried to address such issues by encouraging venture and private capital investments in local technology companies as well as cooperating with university and startup innovation centers to cultivate a culture of hi-tech entrepreneurship.
One key requirement of developing an end to end cloud computing ecosystem would be design and development of core computing technologies such as CPU/chips, operating systems, storage, databases, and management software. So far, the majority of Chinese companies utilise core components from international companies and have designed and developed their products around such core components.
However, the goal of the Strategic Emerging Industries in China’s 5-Year Plan is to drive design and development of home grown products and solutions, changing the Chinese model from cheap “Made in China” manufacturing to value added “Designed/Developed in China”. As a result, initiatives to drive local development of these core technologies will be critical to the long term success of the industry.
In recent years, Chinese network vendors such as Huawei and ZTE have built up their cloud computing product portfolio and system integration services. Both are also marketing their cloud products to international markets, with initial success in Asia-Pacific and Latin American markets, but both are eying European and North American markets also. Huawei has already established a cloud computing research center in Silicon Valley.
As with other key industries, such as telecommunications, the Chinese government is focused on accelerating the local R&D and innovation and therefore may endorse and adopt a specific set of standards, policies, or procurement strategies which would be more beneficial for local players.
Therefore, it may limit or delay the number and scope of international cloud computing service and application providers in China in the short term; however given the enormous market potential in the long term, many international service providers are looking at entry via joint ventures with governments or local partners. For example Microsoft has announced partnership with China Mobile on Cloud solutions and SAP has announced partnerships with China Telecom to provide cloud applications in China. Pacnet is partnering with the Chongqing government and will build and provide cloud computing as well as fiber connectivity at the new cloud computing zone.
Chinese private and public (non-state owned) companies have also been launching and expanding their cloud computing services ranging from IaaS to SaaS. Large internet and software companies such as Alibaba, Sina, Baidu, Kingdee are providing cloud based and SaaS solutions. Last month at the ICT Application conference in Shanghai, Shanda, one of the largest online gaming companies in China, promoted their recently launched ShandDaYu (Great Cloud), modeled after Amazon AWS, and indicated that it’s going to be the “AWS of China”.
Local cloud startups are also thriving as cloud computing becomes more accepted in the market. ChinaNetCloud, one of the first cloud computing companies in China, is providing server management and operation services to hundreds of local and international customers ranging from video, social networking, mobile and media companies. Others such as 2Muse.fm are providing cloud entertainment and media services for the retail stores and commercial properties.
The “Great Firewall of China” is one of the most sophisticated internet filtering systems, blocking many social networking, blog, and news web sites, but sometimes also blocking, completely or intermittently, certain cloud services such as Google docs, and Dropbox, making it difficult to use such services reliably. The filtering also causes significant connectivity speed and capacity reduction when connecting services outside of China.
The Chongqing Cloud zone has tried to address this issue by proposing unfiltered connectivity at their sites, but have limited such service only to international companies, causing local companies to complain about double standards; because of this issue, it remains to be seen if this policy will actually be implemented. Another issue facing the cloud providers and users in China is data privacy and protection issues as the regulation around such issues are vague and at the mercy of government interpretation.
China’s main challenge for growth is at the infrastructure and operational level. Data centre operators still face issues with power availability and therefore are not able to provide high (power) density data centres. As well, while a few data centres have been designed to Tier 4 specifications, none of them yet operate at a Tier 4 level which creates problems for some international companies, especially Financials, which have strict global standards when selecting data center and cloud service providers.
Despite challenges in core competencies, infrastructure, and operational excellence for China’s cloud computing industry, given the government and private focus and investment in the space and eventual market acceptance of cloud services in world’s largest internet, computer, and mobile market, cloud is destined to be a key growth area in the country for the coming decade and an opportunity which should not be missed by any international cloud computing player.
Shervin Bakhtiari is a multi-disciplinary ICT professional and evangelist with fifteen years of experience driving emerging technology evaluation and adoption for a wide variety of customers and clients including Telco/Mobile, enterprise verticals such as financials, as well as angel & venture investments. He currently holds the position of Principal Consultant with Actel Consulting, a leading specialist strategy and technology consulting firm.
Related stories: Cloud Computing in India - reliant on mobile?
Is Brazilian market ready for cloud
Microsoft to take on government cloud in China
