China cloud services market Q2 2020

Shanghai (China), Bengaluru (India), Singapore, Reading (UK) and Portland (US) –

Cloud infrastructure services spend in China reached a record US$4.3 billion in Q2 2020, growing 70% year-on-year. Fueled by COVID-19 response demand and government stimulus measures, China maintained its position as the world’s second largest market accounting for 12.4% of global investment, up from 9.6% in Q2 2019. Growing use of cloud services were driven by digital transformation projects combined with accelerated consumer use of online services. The top four vendors collectively accounted for 78.7% of total spend in Q2 2020. Alibaba Cloud retained its leading share of 40.1% after another strong quarter of growth. Huawei Cloud and Tencent Cloud were its closest challengers, with 15.5% and 15.1% share. Baidu AI Cloud was the fourth largest cloud service provider in the country, accounting for 8.0% of total spend.

Expansion of cloud computing is a key part of China’s new infrastructure initiative. Building new, more advanced, data centers and developing AI initiatives are major priorities, which call upon the Chinese cloud service provider giants: Alibaba Cloud, Huawei Cloud, Tencent Cloud and Baidu AI Cloud. Stimulus from the Chinese government has been in place since before COVID-19, but the digital transformation aspect was accelerated in May 2020.

“Opportunity and demand resulting from the fallout of the pandemic has only fueled enterprise commitment. Business operations are increasingly going digital, while remote work is continuing, and students are relying more on the support of collaboration platforms,” said Matthew Ball, Canalys Chief Analyst. “These trends will further the use of cloud native applications, drive workload migration, and service opportunities as well as data center capacity build-out.”

Alibaba Cloud announced three new data centers in Nantong, Hangzhou and Unlanqab that together will add over a million servers. This is part of the company’s ambitious growth strategy, which includes the buildout of 10 new data centers of similar scale in the future. Huawei Cloud added multiple new availability zones to its expanding coverage in China. Huawei Cloud continues to grow on the back of its DevOps and industry-focused platforms as well as government contracts. Higher demand for Tencent Cloud’s public cloud services from internet companies and the municipal services sector offset ongoing project deployment delays from COVID-19. Tencent also reported strong growth in its online gaming division due to increased demand during lockdowns. Baidu AI Cloud continued to enable digital transformation with its AI gaining traction with developers on its open AI platform and customers with its AI PaaS.

“Momentum in China’s cloud infrastructure services market is set to accelerate,” said Blake Murray, Analyst at Canalys. “An already growing market is being propelled by government initiatives, commitment by cloud service providers to invest, as well as increasing demand for digital transformation and online services in the post-COVID-19 economy. This will drive fierce competition among the cloud service providers. Differentiation of cloud services offered, and execution of strategies will be important in the coming year.”

Canalys defines cloud infrastructure services as services which provide infrastructure as a service and platform as a service, either on dedicated hosted private infrastructure or shared infrastructure. This excludes software as a service expenditure directly, but includes revenue generated from the infrastructure services being consumed to host and operate them.