Posted on 21st May 2016.
I had been writing mostly about data center market in China. In 2015, I was in charge of the data center side of the Cloud and Data Center business unit of a China private enterprise (let’s just called this company CPE) that has minority shares held by the local district government investment bureau, and I was general manager of a Cloud joint venture by the company with a large state-owned-enterprise in the another province.
CPE applied for and received the IDC license through a fairly difficult route. Because one minority shareholder (<2%) has switched his Chinese citizenship to a foreign citizenship, CPE cannot apply for an IDC license. It has to have its shareholders invest into another ISP company (“RH”) that has been operating for a few years without that particular shareholder, and RH applied for and received the IDC license. There are currently estimated to be more than 600 Chinese companies with the IDC license.
On 25th December 2015, The Ministry of Industry and Information Technology (“MIIT”) of China announced the classifications and categories of Telecommunication Industry (“电信业务分类目录”, download from URL link in reference 1) which stated that beginning from 1st March 2016, cloud service providers comes under the IDC license scheme.
The words in bold, translated, says “IDC service includes Internet resource co-ordination service. The provision of IT resources on top of data center infrastructure, through Internet or any other network to provide flexible, pay per use, near real time expandable infrastrcuture service, provision of data storage,” have brought Infrastructure-as-a-service which is the most basic cloud service offering of all cloud service providers under the licensing scheme.
This clearly stated that cloud service providers are now required to have IDC license. This caused a scrambling of Chinese cloud service providers to apply for the license. Amongst those that applied for and received the IDC license are Aliyun, Huawei, UCloud, Inspur, etc. In fact, Aliyun (the cloud service arm of Alibaba) only received its license in March 2016.
Foreign Cloud Service Providers do not have direct route to operate in China
There is no avenue for foreign cloud service provider to apply for the IDC license. The only allowed foreign companies are those registered in Hong Kong and Macau, and these companies can only hold up to 50% of the company that owns the IDC license.
Wait, aren’t there a number of cloud service providers including number one (as of 2015) AWS and Microsoft Azure. They operate by letting their local colocation service provider such as SINNet or 21ViaNet to buy their cloud service and offers their cloud services. Some of them are more overt while some are more in the capacity of cloud infrastructure or technology provider which sort of in a grey area because they “partner” such as the case of Microsoft for their Azure cloud.
The IDC license has reopened for application since 2012 but has only restrict to local Chinese companies (100%), the inclusion of local Chinese cloud service providers to this class of license while keeping out the foreign cloud service provider from directly offering cloud services is not a good sign of opening up.
In the January 2015 guideline by Chinese State Council on promoting Cloud Computing and growing the information technology industry (“国务院关于促进云计算创新发展培育信息产业新业态的意见”, see reference), main point number 7 stated and I quote here:
(7) Active participation and collaboration with International market
Support cloud computing enterprises in acquiring foreign companies, joint venture, planning and execution of cloud data centers and research facilities overseas, entering foreign markets, and service industry and trade based on cloud computing. Enhance joint development with both local and foreign research institutions, guidance to foreign investment into local cloud industry in accordance with existing rules and regulations. Encourage the local cloud enterprises and associations in participation in International cloud computing standard.
I interpret the paragraph above is about getting the Chinese cloud computing enterprises to go out and conquer the world while the foreign cloud computing players are to abide by existing rules and regulations which forbid direct foreign participation in the market. Aliyun has opened two data centers in the US, Singapore, Australia and India since 2015.
At the moment, it seems like the Chinese government has tacitly allows the participation of AWS and Microsoft Azure, among others to provide their cloud technology or service indirectly. The inclusion of cloud service provider to come under the IDC license scheme do warrant an active communications and exchange with the regulators.