Cloud becomes new front line between China and the west

In late 2020, Saudi Telecom, the Gulf state’s largest telecoms group, announced a partnership with China’s Alibaba Cloud to help the kingdom build its cloud computing infrastructure.

It was the latest in a series of deals made by Chinese companies to expand their cloud reach abroad — and part of China’s broader national push to become a world leader in high tech.

“This is something we’re going to see more in coming years,” says Justin Sherman, a fellow at US think-tank the Atlantic Council and an international affairs expert. And, already, the level of investment made by China, at home and abroad, is turning the country into a major player in the race to cloud hegemony.

But fallout from recent trade tensions with the US, geopolitical tussles, and a relatively inexperienced domestic market could all hamper Beijing’s ambitions.

In recent years, China’s cloud computing market has been growing fast and currently ranks as the second-biggest in the world after the US, according to research group Canalys. Cloud spending in the country hit $19bn in 2020, up from $11.5bn the previous year. “China is a high-growth market and so is the cloud,” says Blake Murray, an analyst at Canalys.

Although its $19bn spend represented only 13 per cent of total global cloud spend in 2020, that share was up three percentage points on 2019 levels. By contrast, the market share of the US — the number one market — was down two percentage points to 46 per cent, according to Canalys.

“Chinese cloud service providers may not be as mature as, say, Amazon Web Services, but they are gaining speed rapidly,” notes Kenneth G Hartman, an independent security consultant.

They have been helped by the Chinese government pushing the domestic development of cloud services as part of a wider digital transformation effort. Last May, Beijing said $1.4tn would be allocated to tech platforms, under a “new infrastructure” plan.

“This ‘new infrastructure’ concept is big,” says Winston Ma, author of The Digital War — How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace. “It’s the equivalent of China’s 2007 investments into railroads and high-speed rail as a means of stimulating the economy in a crisis.”

Companies that have already benefited from China’s cloud ambitions include Alibaba Cloud, Tencent Cloud and Baidu Wangpan. Foreign companies have largely been kept at bay.

Laws that prioritise Chinese companies make it hard for competitors such as Amazon and Google to enter the market, despite their best efforts, explains Wenhong Chen, associate professor of media studies and sociology at the University of Texas.

Protectionist policies both in the US and China have only increased tension between the nations. “Cloud policies and practices have become contentious issues in US-China bilateral relations,” says Chen. “Disputes are really about who is going to develop the next generation of cutting-edge technology.”

Beijing now plans to expand its reach beyond China’s national borders, by seeking cloud deals in south-east Asia, Africa, Australia, Europe and the US. 

Chinese cloud providers are able to do this by competing on price, which is a key factor in Europe and Australia, and trading on cultural similarities, which are important to customers in south-east Asia.

Ma says this expansion is an important part of the Belt and Road Initiative — China’s project aimed at developing infrastructure in 70 countries, and a centrepiece of President Xi Jinping’s foreign policy. “The cloud can digitalise the Belt and Road countries, creating strong trading relationships with China,” he points out.

It also allows China to set cloud-related industry standards in multiple countries — potentially influencing future international rules, if those come to be based on widely used global practices for cloud-sharing and data protection. “The implications are huge,” Ma believes.

But China’s plans have met increasing resistance. Last August, Mike Pompeo, then US secretary of state, threatened a broad crackdown on Chinese tech companies with access to American data, including limits on the cloud computing groups that may operate on US soil. He also encouraged other nations to boycott Beijing’s tech companies.

“The initiative was part of the Trump administration’s strategy to bring European allies on board, [to get] Australia, Canada to ban Huawei 5G networks in their respective national markets, but it also targeted cloud providers,” says Chen. “Under the Biden administration, the rhetoric has been tuned down, but the policies are still in place.”

In addition, strained relations between India and China — most notably over their contested border — has resulted in New Delhi blacklisting scores of Chinese apps and restrictions on cloud-related investment.

“The Indian government wants to promote domestic companies and develop its own cloud technology. Indian and other subcontinental countries also see this Chinese expansion as digital colonialism,” says Sherman.

Nevertheless, even with these obstacles, China’s forays into Singapore, Latin America and the Gulf states are likely to continue. “China has been very ambitious when it comes to the cloud, which it sees as the future,” says Chen.