The AI Explosion Does Not Accelerate the Growth of China’s Cloud Business!

By Roze 3 Min Read

Mainland China’s enthusiasm for cloud services is not yet driving a spending boom in the AI space. In a research released on Wednesday, digital industry intelligence firm Canalys stated that the Chinese cloud services market is still conservative and primarily dependent on government and state-owned firms for growth.

After a spike of interest in ChatGPT-like services, the market was expected to be driven by cloud-based AI model training. For the quarter ending September 30, Alibaba‘s cloud business—which accounts for 39% of the country’s market share—reported a meager 2% year-on-year increase in sales.

Additionally, in November, the internet behemoth shelved plans to have its cloud business publicly listed. Both Hong Kong-listed Tencent and non-publicly traded cloud player Huawei did not disclose its cloud revenue for the third quarter separately.

According to the Canalys analysis, the three biggest cloud players in China maintained their market share in the third quarter of 2022, but overall, the segment’s growth slowed to 10% that year and is projected to be 12% in 2023, which is significantly lower than the 45% spike in 2021.

Cloud Market Growth

In the third quarter, domestic spending on cloud services reached $9.2 billion, an increase of 18% year-on-year, as stated in the report. Analysis by CNBC of data from Canalys shows, however, that it dropped significantly to 5.7% from 13% in the second quarter.

According to Canalys, 12% of the world’s cloud spending occurred in the mainland Chinese market during the third quarter. Global spending on clouds increased 1.5% from the previous quarter, according to CNBC’s study of the third quarter.

Industry investments in AI have been noted by the research firm as “heavily,” and efforts to commercialize AI solutions through the development of “partner ecosystems” have also been highlighted. Developers, software businesses, and specialists are all part of that network, according to the research.

But this hasn’t led to substantial expansion in the cloud market just yet. “The innate complexity of AI technology presents challenges in terms of adoption and deployment,” Canalys said, “yet simultaneously unlocks opportunities for a broader AI ecosystem.”

Several Chinese IT companies, including Baidu, Tencent, Huawei, and Alibaba, have introduced AI models and products this year.

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