A view on the China data center market – part 2

qiandaohu-data-center-u=971122560,122887307&fm=21&gp=0

The picture above is a data center in the scenic HangZhou QianDaoHu district which Watone (www.farvin.com.cn) operates for Aliyun. It uses the lake water to cool the data center (design PUE of 1.3 under full load).

This will be the second post on a series of posts by me and a colleague on the China Data Center market. You can find the earlier post to this series on linkedin under my posts or via newwitblog@wordpress.

Carrying on from post number 1. Please bear with me if there is repeated content from post number 1 that are here.

  1. Government

Besides IDC license issue, another issue that worries foreign firms especially data center is Internet control and censorship, such as through the great firewall of China (“GFW”). However, it affects content to be accessed from outside of China and unless it affects local colocation data center business, no local data center service provider are known to be very concerned with this issue. My advice is to play it cool, if you want to join the local competition then don’t worry too much about it.

While there is no specific initiative to attract foreign data center service provider into China, there is no deliberate attempt to discourage such foreign data center operator. Chinese government, like other Asia Pacific economies, is not well aware of the data center industry. Chinese government officials are very well versed with smart city, cloud technology, big data analytics but are probably only aware of industrial property, industrial parks, so give them a bit of leeway. The local government officials, at county level, will be open to discuss about data center development as it brings investments and also will employ highly skills workforce which is especially important to tier-2 and tier-3 city/county government official because both investment and employment of highly skills workforce are part of their KPIs. Talking to them will also let you have an idea whether there is enough power and water for the places you are interested in. Another way is to phrase your key words as “cloud data center” (“云数据中心”) as you can say that your data center will be ideal to house cloud technology, cloud data center they understand amazingly well.

There are lots of positives in terms of support from the Chinese government. They encourage investment in data centers, cloud, and big data analytics. The government has issued directives that government system and data can be outsourced to third party to manage (http://www.gov.cn/zhengce/content/2015-01/30/content_9440.htm). This will be a good guarantee of base load for any government built data center that you may be interested to look at.

From 2010-2014, new data centers in Beijing is estimated to have grown at 29% per year. That is a very fast pace and in the next five years it is still predicted that total data center space for whole of China will continue to grow at double digits.

The Chinese government’s Twelve Five Year development plan (2011-2015), green data center, cloud technology, big data are encouraged.  From 2010-2014, new data centers in Beijing is estimated to have grown at 29% per year. That is a very fast pace and in the next five years it is still predicted that total data center space for whole of China will continue to grow at double digits.

In the to be finalized thirteenth Five Year development plan is expected to push for intelligent cities, cloud technology, Internet of Things, Big Data Analytics amongst the high technology development areas of focus.

Government support is there in another form. A lot of the data centers are built and are empty. The government has the funds (through local government investment companies facilitated by government financing) and has built data centers. For example, the NingXia province ZhongWei city government is building three data centers for Amazon Web Services. The ChongQing city government has funded a substantial chunk of the data centers cost for two data centers for Pacnet. There are still several hundreds of those data centers that are owned and managed by government BUT are not solely for government use themselves.

The central Chinese government has realized that there are too many data centers built by the government, it has issued directive that it will centrally plan and control such large data center build from 2015 onwards.  The central Chinese government has also start to encourage new data center build to be green, with PUE of 1.5 or even lower. Beijing city in 2014 it had announced any new data center must have PUE 1.5 or below.

 

  1. The local partner/s

Whether you take the “IDC” license route or not, you will need a local partner as joint venture partner or as sales channel that provides the ISP connectivity.  A well-established company is much better than an eager new company. The Chinese business and government communities recognize and prefers stability. And there is a requirement in the IDC license application form that requires the local partner to have at least a few years in operations.

Choose a well-established company that has presence in more than one of the three network hubs (Beijing, Shanghai, and Guangzhou) in either Beijing or Shanghai first, preferably with the city that you will establish your first data center as you will reduce the work to get it off the ground. Don’t register in Beijing and then go to Shanghai for your first data center, you will waste time and effort knowing two sets of people in two cities for the first data center. Conquer one city at a time.

There is this reality, be prepared you will need to work with different local partner in the different cities you want to build your portfolio of data centers. This is because there is only a handful of data center companies that owned data centers across the multiple cities in China.

I have met with at least 8 different ISPs/ICPs/managed IT companies and data center companies in Shanghai, with varying willingness to partner for either their existing data center or build new data center. You will need to check out their stories, their finances and this takes time and effort. Some large state owned enterprises have an IT subsidiary in Shanghai, Beijing and nearby provinces that may be worth talking to. However, their bureaucracy, internal politics and slow process will test your patience. However, successful cases of Fujitsu and Pacnet in the reference cases section are examples whereby they have established joint ventures with large state owned enterprises’ IT subsidiary to jointly own and develop data centers. These joint ventures get the help and experiences of large state owned enterprises to deal with the administrative and tedious process of IDC license and dealing with their fellow public administrators for land, power, water, various licenses (e.g. fire safety, building safety, construction safety etc) much more efficiently.

 

  1. Having Carriers and good network connectivity in your data center facility is very important

One important part of a data center, for China and possibly other developing economies in Asia, is the Internet connectivity. It is most common for a data center client to evaluate if the data center facility has any of the carrier connectivity. The clients are used to having this carrier connectivity as a full package. Unlike other developed economies or those with liberalized telecommunications market where carrier neutral data center facility allows customers to choose the telecommunication carrier to use, it is the other way around in China. The clients look for data center facility with the telecommunication carriers in mind.

It is also why it is important for local partner especially one that has the ISP/IDC license which this partner will bring the connectivity into the data center facility.

And the quality of the network connectivity, and the cost your partner can get them (list price from telco means no competitive advantage), and the quality of the network route (if your Shanghai data center customer’s server response takes the path to the Beijing network hub and back, then your customer will complain and may move their business to a facility with optimized network routing).

 

  1. GB 50174 Chinese Data Center Standard

Unlike the Telecommunications Industry Association (TIA) ANSI/TIA-942-A Telecommunications Infrastructure Standard for Data Centers which is an American National Standard (ANS) that is mainly about telecommunications cabling system standard with appendices on data center, the GB 50174 is written specifically as a Chinese National Data Center standard, it references other Chinese national codes such as the building and fire safety standard.

The GB 50174 classifies data centers into class A, B, and C. And these roughly corresponds with Tier (Tier is now called by TIA to be Rated) 4/3 and T2, and T1. Why the class A matches tier 4 and 3? It was a deliberate decision as T3 is not enough and T4 is too much. There is no mention anywhere in GB 50174 for 2N backup generators unlike the Uptime Institute’s description.

This can be confusing for the foreign data center service providers. My advice is to build to class A of GB 50174, and you will not invest as much as a Tier 4 which is what you may think you are doing. Class A sits between T4 and T3.

You will find that majority of the data centers of good repute and quality build are of class A are 2N UPS, with N+1 generator backup, N+1 chiller support. This is the norm. Any variations to have 2N on generators and chillers add to your cost and reduce your cost competitiveness. You may want to be different for good reasons, but try to understand what the customers are looking for.

Go and visit the local data centers, observe and don’t state or make comments about superiority of your overseas data center. As a side note, the Chinese banks do have a 2+1 (2 production data centers + backup data center) “两地三中心” data centers operations strategy as mandated by the central bank, so they rely on multiple data centers for availability of their system and data and not on any particular data center resiliency design and feature. Second is the Chinese businessman are proud of what they have built. It is always better to make positive comments.

Second thing about Chinese data centers are that the technical and operations folks hardly move from one company to another, and data center design and advisory companies are few and the technical people knows their data center but they don’t know about others and the data center designers do not carry over their experiences from one project to the next (more on this in later post in this series).

 

  1. Huge Local Demand and Low Foreign Demand

There appears to be a two tier market in the key data center hubs.

Generally, large enterprise customers and BAT require class A data centers, and this is the first tier customers. The retail colocation data center usually attracts and host on price which meant these data centers are sometimes class A or class B claiming to be class A.

BAT drives a lot of the demand and BAT have dictated the kind of data center build they want. For example, Tencent is very specific and theirs micro-modular data center looks almost identical be it in Tianjin, Shanghai, or GuangZhou. Same goes for Alibaba and Baidu. And they take up a lot of the data center space in the key data center hubs.

It is the huge demand of data center space from within China that fuel the growth of the China data center market.

Foreign companies also demand class A type data centers. Most foreign companies’ look for data center space around Shanghai, where it is also the headquarter location of choice for most foreign companies that are in China. The most common complaint of foreign companies looking for or are already co-located within a data center facility in China is the lack of appreciation of the SLA and incident response time and incident escalation process, coupled with a language communication issue, there are a few data centers that caters better to foreign companies looking for a co-location data center space especially in Shanghai.

There seems to be no huge requirements for data center space in China from the foreign companies with operations in China. The well-known exception is Amazon Web Services, which uses three data centers in Beijing, and ZhongWei city government is building three data centers meant for Amazon Web Services.

 

  1. Profile of Data Center Companies

A data center building with data center infrastructure is capital intensive. Compare to the real estate business, it does not have high barrier to entry if you can secure land use. However, it ties up a lot of capital as generally the data center infrastructure adds 5-7X more capital needs than a data center building shell.

I classify data center service providers as follows:

  1. Telcos
  2. Data center service provider
  3. Managed IT / ISP / ICP / Cloud companies
  4. Equipment vendor
  5. Real estate developer
  6. Investment arm of government

The first group has three dominant players and there are a few other broadband service providers with data center spaces. For the second group, it is a very small list, with 21vianet, Centrin, GDS, SDS amongst them.

For the third group, they usually don’t have huge capital to expand beyond their existing one or two data center with a few exceptions (e.g. Sinnet, DrPeng, Watone), and are seldom having data center that are standalone dedicated data center facility.

For the fourth group, Inspur (浪潮), which is well known for IT servers, is a representative company.

For the fifth group, the data center is more likely to be a dedicated standard alone building, situated in the mix use office/IT/high tech park or compound that they have built and owned (e.g. RangeIDC at Hebei LangFang city’s  润泽国际信息港). While building a data center is capital intensive, the low barrier to entry meant many local data center players in many cities in China. There are 26+ IDC licenses given out in Shanghai alone.

The sixth group, ultimately looks for a company from first to fifth group to take over and operate for the mid to long term. For example Tianjin Eco-city’s data center building, the ChongQing cloud development zone’s data centers.

Another piece in this series will talk more about the data center players in China.

There are a few loose groups of data center industry organizations:

  • The China Data Center Committee group (http://www.chinadcc.org/)
  • The China Data Center Alliance (http://www.dca.org.cn/). This is organized under the auspices of the Ministry of Industry and Information Technology.
  • The China IDC Circle (http://www.idcun.com/)
  • China Green Data Center Advancing Federation (http://www.jifang360.com/union/)

All of these groups organize their activities in Beijing. Some of them do chat regularly via mobile chat tools such as Wechat.

 

  1. China is not a single homogeneous Data Center Market

Beijing, Shanghai, and GuangZhou. These are the key Internet hubs of China, and are the right places to begin the first data centers. These will be described further in the furture posts in this series. These are also the Internet exchange hubs both Internal within China, and also the Internet gateway of China with the rest of the world, mainly to Tokyo, Hong Kong and rest of the world.

There are also important new developments in China on secondary data center markets, some are in support of the above three mentioned hubs, such as the proximity of cities of Tianjin and LangFang to Beijing, KunShan to Shanghai, and ShenZhen to GuangZhou. There is also new and promising places especially western part of China. These new and promising areas include ChongQing/ChengDu, NingXia ZhongWei, and Suzhou, HangZhou. More on these in future posts in this series.

 

  1. Pitfalls to avoid

The following is a non-comprehensive list of pitfalls to avoid wasting effort and time:

  • Avoid jumping in to get the IDC license. Go find a legal firm in China that can answer fully and clearly.
  • Avoid saying you know China, even it is your tenth visit. A visitor will never know a place with a different working language and a culture as steep as China.
  • Avoid introducers or brokers. If you must use them, use them once and pays the introducers fees and deals direct after the first contact.
  • Avoid going over too many levels, as this is considered a virtual face slap to the official who is bypassed, to get the attention of someone to address your issue. The right balance is hard to strike and wrong door is a bad move as well.

 

  1. Things to do

There are good things to do when coming to assess whether-to and where-to have a data center in China:

  • Get an advisor (firm) who knows the data center market. Going it direct will be more effective only if you are a big name player and have been looking at and talking to local stakeholders for a period of time (e.g. Equinix that bought Asiatone for Asiatone portfolio of China and Hong Kong data centers, reference 6).
  • The number 1 problem that foreign data center player face in China is the language barrier. All official documents are in Chinese. While there are countless professionals and officials that are well versed in English, ultimately you will have to grasp or translate to the official Chinese language for any documentation. Get good bilingual senior managers.
  • Set up a local presence. For a data center service provider, the Chinese customers will only talk to you if you show the money and be present. Deliver is when the data center asset is fully operational.
  • Consider to pare down your data center service offering until such that you don’t need the IDC license
  • Get good partner that complements your data center service offerings, e.g. offers Internet connectivity, get customers and manages channels, etc.
  • Talk to city official, the highest rank but also the right level. There is no point talking to the city party secretary while you overlooked the city vice major in charge of high tech park. The right balance is hard to strike and wrong door is a bad move as well.

 

What’s to come in the series on the China Data Center Market

The rest of the series, not necessarily in the order shown, will look at the following topics:

  1. Current China Data Center Market players
  2. Beijing Data Center market
  3. Shanghai Data Center market
  4. GuangZhou and ShenZhen Data Center market
  5. ChongQing+ChengDu Data Center market
  6. and other China cities that is considered promising growth markets
  7. Technical Advancement in China Data Center Market

 

Reference (some of these links are in Chinese):

  1. http://news.idcquan.com/news/59946.shtml
  2. http://www.gov.cn/zhengce/content/2015-01/30/content_9440.htm
  3. http://www.chinadcc.org/
  4. http://www.dca.org.cn/
  5. http://www.idcun.com/
  6. http://www.equinix.sg/company/news-and-events/press-releases/equinix-completes-acquisition-of-asia-tone-expands-data-center-footprint-in-asia-pacific/
  7. http://www.chinatraining.com.cn/cms/media/news/2015/3492/0906091320111.pdf
  8. http://www.wtoutiao.com/a/1093756.html
  9. http://www.gov.cn/zhengce/content/2015-01/30/content_9440.htm
  10. http://www.chinatraining.com.cn/cms/media/news/2015/3492/0906091320111.pdf
  11. http://www.cfc365.com/technology/data%20center/2013-10-11/11306_3.shtml
  12. https://www.aliyun.com/zixun/content/2_6_92536.html
  13. http://www.cfc365.com/technology/data%20center/2013-09-04/11004.shtml

 

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A view on the China data center market – part 2

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