The Slow Growth of Cloud Services Spending in China

The Slow Growth of Cloud Services Spending in China

Excitement over artificial intelligence (AI) has not translated into a significant increase in cloud services spending in mainland China, according to a report by tech market analysis firm Canalys. Despite the potential for growth in the cloud services market, China remains conservative, relying heavily on government and state-owned enterprises to drive expansion.

In the third quarter, Alibaba’s cloud business, with the largest market share of 39%, reported a mere 2% year-on-year revenue growth. Additionally, Huawei, the second-largest cloud player, did not disclose its cloud revenue for the third quarter. Similarly, Tencent, another major player, did not provide separate figures for its cloud division. This lackluster performance indicates that the three largest cloud providers in China held the same market share as in the previous quarter, while the overall growth in the segment slowed to 10% in 2022, with an expected further dip to 12% in 2023. This pales in comparison to the remarkable 45% surge in 2021.

Domestic spending on cloud services in China experienced an 18% year-on-year growth in the third quarter, reaching $9.2 billion. However, this growth rate drastically dropped to 5.7% from the second quarter’s 13%, as analyzed by CNBC using Canalys data. Although mainland China accounted for 12% of the global cloud spend in the third quarter, the global cloud spending only rose by 1.5% from the previous quarter. This slowdown is a cause for concern and reflects the challenges faced by the industry.

The Challenge of AI Adoption

The report highlights that the industry has heavily invested in AI and aimed to monetize AI offerings through the development of partner ecosystems. These ecosystems consist of developers, software companies, and experts working together to enhance AI technology. However, the adoption and deployment of AI present inherent complexities that impede its progress. While AI technology holds opportunities for a broader AI ecosystem, its realization has been slow to translate into significant growth for the cloud segment.

Despite the challenges faced, major players in the Chinese cloud market, such as Alibaba, Huawei, and Tencent, have released AI models and products throughout the year. These developments align with the industry’s efforts to capitalize on AI’s potential. Additionally, other companies in China, including Baidu, have also introduced AI-based offerings. However, these initiatives are still struggling to generate substantial growth in the cloud services sector.

The current conservative nature of the Chinese cloud services market, heavily reliant on government and state-owned enterprises, has hindered the expected boom in cloud services spending. Despite significant investments in AI, the deployment and adoption of AI technology present challenges that restrain growth. While major cloud players continue to release AI models and products, the overall growth of the cloud segment in China has slowed significantly. It remains to be seen how the Chinese cloud market can overcome these hurdles and unlock the full potential of cloud services and AI technology.

Global Finance

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