The cloud services market in mainland China, despite the growing excitement around artificial intelligence (AI), is showing signs of sluggish growth, according to a recent report by tech market analysis firm Canalys. While AI was expected to be a significant driver for cloud services, the market remains conservative and heavily reliant on government and state-owned enterprises to fuel its expansion.
Alibaba Cloud, boasting the largest market share in China at 39%, reported a mere 2% year-on-year revenue growth in the third quarter, highlighting the challenges faced by industry leaders. Furthermore, in a surprising move, Alibaba canceled its plans to publicly list its cloud operations in November. Huawei, the second-largest cloud player, did not disclose its cloud revenue separately for the third quarter, and Tencent, listed in Hong Kong, followed suit by withholding such details.
Stagnation in market share and slower growth
The Canalys report also revealed that the three largest cloud providers in China maintained their market share from the previous quarter. However, the overall growth rate for the cloud services segment in China slowed to 10% in 2022, with expectations of a modest 12% growth rate in 2023. This represents a significant decline from the impressive 45% surge experienced in 2021.
In the third quarter, domestic spending on cloud services in China reached $9.2 billion, an 18% year-on-year increase. Nonetheless, this robust growth slowed substantially, dropping to 5.7% from the previous quarter’s 13%, as CNBC analysis of Canalys data revealed. Despite the deceleration, the mainland Chinese cloud market accounted for 12% of the global cloud expenditure in the same period, underscoring its significance on the global stage.
AI investments and challenges
The cloud services industry in China has been investing heavily in AI technologies, aiming to monetize AI offerings through the development of extensive partner ecosystems. These ecosystems encompass a network of developers, software companies, and experts. However, while there is optimism about the potential of AI, its inherent complexity has posed challenges in adoption and deployment.
Canalys points out that while the complexity of AI technology presents hurdles, it also unlocks opportunities for a broader AI ecosystem. Leading Chinese tech giants, including Alibaba, Huawei, Tencent, and Baidu, have each released AI models and products to capitalize on the burgeoning interest in AI services.
Future outlook
The future of the cloud services market in mainland China remains uncertain as it navigates through challenges and opportunities. While AI is expected to be a transformative force, the market is yet to witness the anticipated explosive growth. The reliance on government and state-owned enterprises for growth underscores the sector’s need for diversification and innovation.
Despite the excitement surrounding artificial intelligence, the cloud services market in mainland China appears to be treading cautiously. Major players such as Alibaba Cloud and Huawei are facing challenges in achieving significant revenue growth, while the overall market is experiencing a slowdown compared to previous years. The complex nature of AI presents both obstacles and possibilities, and the industry’s investments in AI are yet to translate into substantial growth for the cloud segment. As China’s cloud market continues to evolve, it will be crucial for businesses and stakeholders to adapt to changing dynamics and seize emerging opportunities.
