China's cloud deployment dampened by nascent enterprise demand

Local governments are pushing for cloud infrastructure build out, but domestic enterprise demand for public cloud services is still low due to security and connectivity issues.
Written by Liau Yun Qing, Contributor

Chinese authorities are encouraging the building of cloud computing infrastructure in their jurisdictions. However, cloud services in China face the challenge of low demand from enterprises who are reluctant to fully adopt public cloud due to security and connectivity issues.


Gene Cao, senior analyst at Forrester Research, said over 20 provincial government agencies in China have announced plans to build cloud computing centers since last year. However, most of the plans are still at the very beginning stages or early adoption of implementation, he said.

Chris Morris, associate vice president for Asia-Pacific services practice at IDC Australia, added the government's encouragement in building cloud data centers is not an uncommon strategy. "They see cloud computing as a way of both delivering new and existing services more cost-effectively and as a way to attract new business to their area and create jobs," he said.

He noted government support was welcome by hardware and software vendors as they see the cloud initiatives as a way of potentially shipping a lot of systems and gaining a subsidized datacenter footprint with financial assistance from government agencies.

However, Morris noted China's regulations make it necessary for foreign companies to partner with a local telco to gain a communications license which restricts a company's willingness to invest.

Chinese enterprises prefer on-premise to cloud
Despite the government's enthusiasm, Cao said the use of China's cloud infrastructure was still low.

He explained: "This is primarily due to immature demand from enterprises, as well as government applications such as e-government, e-tax systems and so on, which are not able to digest all the computing resources of those cloud data centers."

According to a spokesperson from Alibaba Cloud Computing, another challenge for public cloud adoption is trust, and more work needs to be done to build enterprises' trust in cloud computing. "While some large companies in the United States have moved a majority of their IT architecture to the cloud, cloud computing services in China are mainly used by small and midsize busiensses (SMBs)," she said, adding that SMBs were more open to cloud as they found it difficult to hire suitable IT talent to maintain their servers.

Morris added that the mainland Chinese market is fundamentally different from mature regional markets such as Singapore or Australia. "There is a longstanding preference for enterprise-owned physical assets for hardware and software, rather making use of external services such as outsourcing or managed services," he said.

This trend has led to the widespread lack of experience in sourcing and managing services which is necessary for efficient and effective adoption of cloud services, Morris said. "Without [outsourcing and managed services] experience in the enterprise and without a large IT services market in mainland China, cloud adoption will be handicapped," the IDC associate vice president explained.

He added the adoption of cloud services by large Chinese enterprises is focus primarily on private clouds. Most of the private clouds are hosted on-premise but Morris noted that some companies have recently started outsourcing their private clouds using hosted services.

Morris added that the adoption of public cloud services has been limited to low-risk applications and for industries such as education and government which are more cost-sensitive.

Despite the slow pickup, Cao said China's public cloud market is expected to grow faster than the rest of the Asia-Pacific countries, including Australia, Japan, India and Southeast Asian countries. "Chinese public cloud market is forecasted grow from US$297 million in 2011 to US$3.8 billion in 2020, representing a compound annual growth rate of 36 percent from 2011 to 2020.

The Alibaba Cloud Computing spokesperson added it will take time for users in China to fully embrace public cloud as the introduction of cloud services to China was later than in the West.

"Amazon’s cloud computing services have been around for 6 years. Cloud computing has been known for only 2 years in China where people's awareness and acceptance of the concept is still in an early stage," she said, adding that it will take time to close the gap.

Connectivity another challenge for public cloud
Morris noted connectivity was a roadblock for China's cloud market. "Access to broadband is not consistent or continuous so the global model of a mega-datacenter servicing one market doesn't work so well and possible market [reach] is reduced," he said.

"Local independent software vendors (ISVs) such as Ufida with their enterprise resource planning (ERP) systems are achieving some success but the majority of the implementations are based on hosted private cloud," he said.

Cao agreed that Internet connectivity remains a big challenge for adoption of cloud computing services, especially in remote tier 3 to 6 cities. However, he expects this problem to be eased after the upgrading of broadband infrastructure led by the Ministry of Industry and Information.

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