Chinese Dragon – the Year(s) of the Cloud?

Grazed from BusinessCloud9. Author: Stuart Lauchlan.

China has long been regarded as a potentially major growth market for US technology firms – unfortunate human rights and freedom of speech considerations set aside for the moment – and it’s the same story for Cloud vendors now.

At the moment, China probably accounts for less than 3% of total global Cloud Computing market share, but research firm Gartner confidently predicts a 40% annual growth rate coming up. Rival research firm IDC backs up this claim with an estimate that the size of China’s ICT sector will nearly double between 2010 and 2015, going from $221 billion to $389 billion.

According to the country’s 12th Five-Year Plan (2011-15), Cloud Computing will be a chief driver of the IT industry and the development of e-government in China. To that end China already has five pilot Cloud Computing cities – Beijing,Shanghai, Shenzhen, Hangzhou and Wuxi, China has also approved the National Financial Support Programme for Cloud Computing Demonstration Project to fund 12 key projects from those first five Cloud Computing cities…

A further 8 provinces and cities have announced their own local Cloud strategies and plans while a National Cloud Computing Industry Development plan is set to be published soon. It’s all going to be very big business.

Government backing

With planned $154 billion investment in Cloud, .China will come to rival the US as the country with the biggest potential to develop key breakthroughs, according to a survey of more than 650 executives by KPMG.

The Chinese Government is encouraging significant investment in three key areas, noted Edgidio Zarrella, Clients and Innovation Consulting, KPMG China – shared services/outsourcing, mobile payments and Cloud Computing.

He added: "Cloud will have a major impact — 31% of respondents say that Cloud Software as a Service will enable the next indispensable consumer tech by 2015 while Cloud Infrastructure as a Service (22%) and Software as a Service (21%) will drive business transformation.”

If all things pan out as expected, that means China could be on a par with the US in terms of Cloud innovation pretty soon. “It is clear that technology leaders in countries where technology innovation is thriving believe that the Cloud represents a technology tidal shift,” admitted Gary Matuszak, partner, global chair and U.S. leader for KPMG’s Technology, Media and Telecommunications practice.

“They are placing a huge bet on Cloud, as it has multiple capabilities and benefits for providers and users such as generating revenue, improving operational efficiency, reducing costs and time to market, and enabling other disruptive technologies such as mobile and social applications. The significant Cloud investment that is under way is likely to spur technologies that drive breakthroughs in business transformation.”

So Cloud is a priority for the Chinese government. Last week it was confirmed that China’s largest under-construction Cloud Computing industrial park is being built in Suzhou, Anhui province, and house a 100,000-square metre Cloud Computing database and an optical fibre network.

China’s three major telecom operators are all working on Cloud In May 2012, China Telecom launched its Cloud Computing information park project, which includes the first phase project to be completed between 2012 and 2013 and the second phase to be completed between 2014 and 2016. China Mobile also has a data centre in Hohhot while earlier this month China Unicom began work on a new Cloud base in northwest China.
Government blocking

From the outside, all this looks very tempting of course. “China is leading the way, which is strange because this is normally what happens with the US and then China follows – it has been like that for the past 20 years,” said Denis Yip, EMC’s President for Greater China recently.

Of course the Chinese authorities haven’t exactly made it easy to do business there. A Global Scorecard of countries and their attitudes to the Cloud Computing industry placed China in 21st place, citing its preferential treatment for domestic suppliers in government procurements and the fact that the authorities restrict access to online content under a large and complex legal and technical regime that invokes the protection of national security and social order.

So how to crack the uncrackable market? It’s not easy, but Microsoft reckons that it’s on the verge of a “breakthough” to provide a localised Cloud services platform in China and hopes to begin building data centres on the Chinese mainland to support this.

Non-domestic providers are not allowed to deliver Cloud services directly to Chinese citizens. But Zhang Yaqin, Microsoft China’s chairman, said last week: "We are close to landing our Cloud service in China."

Microsoft to date has worked with partners in China, such as Beijing-based PPTV to provide paid online video services overseas through Microsoft’s cloud platform, Windows Azure.

The firm has also been nurturing Chinese start-ups through its Accelerator for Windows Azure innovation programme. Ten pre-”A” stage start-ups have been selected from a choice of 46 candidates, and will get Microsoft’s stewardship for the next six months as well as two years of Azure Cloud infrastructure access worth $60,000. It’s a smart move without doubt.

Whether this approach will succeed remains to be seen, but there’s clearly a lot at stake to get US skin in the game in China. As KPMG’s Matuszak put it: “The pace of technology innovations today is happening at unparalleled speed and China’s projected rapid rise to prominence as a technology leader would be another example of this.”