The Chinese IT landscape has over the past twenty years been catching up to that of the developed world. With China now hosting some of the largest tech companies in the world, and with the country still not fully cloud enabled, the potential for cloud adoption is massive. By 2020, China’s cloud computing is set to break through the barrier of $20 billion, compared to just $1.5 billion two years ago.
In a recently released article from Bain & Company, titled ‘Finding the silver lining in China’s cloud market’, the consulting firm explores the development of cloud computing in China. While Chinese tech companies have a huge client base, the adoption of cloud based services, both public and private, has lagged behind those offered in the US.
Over the past 20 years, Chinese players have been playing catch-up. According to the consultants, in 1995, China’s tech infrastructure was fifteen years behind that of the US, with much of its infrastructure on-premise, self-operated and enacting backend applications. The industry however, continued to grow rapidly, being six years behind by 2006 as more of its servers moved onto web-based offerings. Today, Bain estimates that the industry is four years behind that of the US and is on the cusp of adopting cloud based services, including virtualised infrastructure, private infrastructure as a service as well as software as a service.
China remains the sixth largest spender globally on enterprise IT solutions, spending around $47 billion – although dwarfed by the US which spends $586 billion on enterprise IT. As it stands, the cloud computing market in China is modest, worth around $1.5 billion in 2013, making up around 3% of China’s enterprise IT market. Bain projects the growth of the market to be strong however, at between 40% and 45% to 2020, generating spend of up to $20 billion and hitting 20% of the Chinese IT market. While the next wave of development is set to hit the Chinese tech sector, thrusting cloud based solutions, the report finds a number factors still limiting migration to the cloud – assuming China continues to follow the trajectory of the US.
While the cloud market is growing, a number of local and geo-political factors are dampening and transforming how the market – as well as the supply side of infrastructure – is developing. Infrastructure related to the broadband network is still well behind that of the US and European competitors, with speeds in China averaging 3.4 Mbps in the fourth quarter of 2014 while speeds in the US averaged 11.1 Mbps. Network penetration also varied considerably, the US has 29% rate of subscribers per capita on fixed broadband options and 98% for mobile internet, while China has 14% and 21% respectively.
Besides infrastructure issues, Chinese businesses – on behest of Government advice – are also weary of using abroad manufactured infrastructure components, with allegations that the US has actively sought to create espionage channels in its locally developed technology. As a result, Bain highlights that the selection for hardware providers is too fixed on locally developed technologies and IP.
China is however looking to heavily expand its investment in cloud technology. The Chinese state has placed cloud as a strategic priority in its 13th five year plan, with much of that investment to be concentrated in developing private cloud based solutions in line with the strategic need to protect sensitive information. State owned telcos in the country are for example planning to invest around $180 billion in fixed-line and wireless connectivity between 2015 and 2017.
As it stands, cloud adopters in China are favouring the private cloud landscape, with adopters spending around 13% of their IT budgets on such solutions, compared to less than 10% of adopters opting for public cloud. Particularly large state-owned players, as well as large players spending on private cloud solutions, with mainly new entrants spending their budget on public cloud, before moving to private solutions when they have scaled sufficiently to enter into the more expensive private based solutions. According to the analysis, this may well mean that local hardware suppliers are set to benefit significantly from China’s move toward cloud based solutions.
“Despite the uncertainties and challenges, global cloud providers cannot afford to ignore China’s large and growing market. Increasingly competitive domestic players are finding their niche, but multinationals still have an opportunity to shape the market. Now is the time to identify target segments and invest in solutions for this customer base, as China’s IT buyers decide how they will take advantage of what the cloud has to offer,” conclude the authors.