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China Cloud

Published: February 2013
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In this new report by BroadGroup, China Cloud investment and datacenter developments are identified for the first time. Based on a research programme completed over 8 months, adopting a highly qualitative research methodology with more than 100 face to face interviews and 450 pages of transcripts, and retaining original Chinese character translations for many of the important names, locations, and projects, this report provides the first original and comprehensive assessment to date of China’s Cloud strategy and datacenter deployment.

China Cloud describes a strategy to leapfrog technology dependence on foreign suppliers and generate long term economic growth for its 1.3 billion people. The Chinese government’s 12th 5-year plan has distinguished itself globally by investing significantly in creating new cloud platforms, software and applications supported by a programme of massive cloud datacenter deployment.

Cloud has captured the imagination of China’s policy makers. For reasons of national security, social stability, and economic development, China is in an aggressive catch-up and leapfrog mode for cloud computing and has provided extensive public funding and instituted policies that promote the construction of infrastructure specifically designed for cloud computing, with often mega, high-quality, energy efficient cloud datacenters which will serve as a fulcrum for new service innovation.

Beginning with the initial government plan for 5 cloud cities, the report details how this has now proliferated across at least 15 provinces with significantly funded projects. The report identifies a total of 109 projects, most of which include the construction of new cloud datacenters. The North also scores highly in terms of overall project investment, with province by province investment plans detailed in the report. The top five provinces represent more than 88% of the total investment.

The report documents profiles with SWOT analyses across the key datacenter player segments. Based on research for this report, market share by technical space (m2) unsurprisingly shows that the Big 3 occupy more than 55% as at the end of 2012 (these figures do not include projected build). Other operators comprises of a mix of government owned facilities, public and privately owned datacenters. The report distinguishes between the other players – Internet datacenters, Carrier Neutral players, and datacenters (including niche players in gaming and content distribution.

Oveseas players, local vendors and joint venture partnerships, other cloud players and fibre providers are also reviewed.

Cloud cities are detailed in the report and in a regional analysis of Cloud investments, include a taxonomy of the projects taking place in each location. Maps of the distribution of Cloud projects by Investment by RMB, by space (m2) and by number of projects provide additional illumination of the scale of Cloud China. Around 56% of all new capacity is concentrated in northern China. The north of China and eastern seaboard represent the nucleus of cloud datacenter development.

Challenges to the datacenter sector are immense. The success of China Cloud projects will ultimately depend on business models and demand, but the report explains the many political, commercial and technical hurdles already existing in the datacenter market relating to bandwidth availabilty, network access and power supply.

The report finds that power investment is now a matter of urgency. Estimates suggest power consumption by datacentres already reached in the region of 5% of national electricity output in 2011, and accelerates pressure for urgent investment in renewable energy and efficiency gains within every new cloud datacentre facility.

In a market with few Internet peering points – Beijing, Shanghai, and Guangzhou – and poor interconnection between China Telecom in the south and Unicom in the north, the notion of the Border Gateway Protocol (BGP) assumes a prominent role and outsized significance in managing and conducting a datacenter business. The report covers this topic in detail and the key challenges it presents.

Opportunities are certainly present in the market, but only government policy can unlock new business development.

Change could be in play beginning with the rules on investment in telecoms, documents in proposals made in a document from the Ministry (MIIT) in July of 2012 uniquely referencing the cloud datacenter sector. However at the time of writing this report, these changes have not yet come into effect. The report suggests however that new entrants seeking to exploit traditional datacenter business plans will find the market extremely challenging because of the enormous impact of Cloud China datacenter projects already announced.

Nevertheless, Licensing remains vague and grey, and the report discusses the debate that has taken place internally where it remains a contentious issue within policymaker circles. The report also examines at some length the internal policy debate relating to datacenters. Limited forms of Joint Venture have been tolerated, but because datacenters impact directly on the free distribution of content it remains a touchy issue. The theories that remain in circulation about what potential solutions might eventually be sanctioned are identified. It remains to be seen whether new policies will emerge following the recent change in government.

More intriguing possibilities for investment could emerge in the coming years as change unfolds, and well positioned cloud datacenter players in China stand as a key opportunity – and beneficiary.

Forecasts based on information made available during research for this report would suggest a substantial increase in capacity mainly reflecting the projects planned and detailed in the figures included. However, the planned growth relies on a wide range of variables and unknowns which are also specified.

With many China Cloud projects representing massive datacenter build, the forecast reveals an increase of around 150% in total capacity (m2) by 2016.