From the trenches of Asia data center build projects

trenches

There are issues faced by yours truly and colleagues in data center build projects in China and elsewhere. Some of these experiences and lesson learnt will be shared in this post. For reason of protecting the people involved, some specifics are obscured (e.g. country/location) while not affecting the message being shared.

Labor Strike

At about half way into the build programme for a data center in a city in south pacific, the electricians union called for a strike because compensation negotiations with the electrical installation companies broke down for the four year collective agreement. The labor strike went on for 10 full days and 7 half days. For those half day strike, the electricians worked until 11:30am and walked off. Our project schedule had very small buffer. While the client is apprised of the labor strike situation but their legal counsels do not agree that this fall under force majeure condition of our agreement. We did manage to catch up by paying for some overtime days after the strike period was over and the representatives from the client delay their take-over date by four precious days and we avoided penalty. We should look out for and plan a bit more buffer whenever such collective agreement are up for renewal.

Budget

Different country has different practice when it comes to budget, in particular buffer. In Singapore, we do not budget for a buffer, it is usually budget in such an arrangement that should the budget not exceed by 5%, then it will be covered from a central fund or some prior arranged account for contingency.

When we worked on a project in Australia, the design firm had to explain to us that the buffer of 10% is expected to be used and savings, if any, are a blessing.

In China, the budget is fixed and cannot be exceeded and there is no buffer by the final round of budget review by senior management. The other thing about the budget number is that almost certainly all data center equipment vendor and contractors will learn of this number, somehow.

While on the topic of budget, the budget for data center design contract is roughly the same in Singapore and Australia, which is around 3-5% of the whole project cost.

In China, the guideline by the building regulations give non-mandatory guideline on all design contractors to be 3-5% as well, however the competition for contract and normally the awarded design contract comes up to under 3%, sometimes not even 1%. Quality and resource allocation by the design firm do suffer as a consequence of the cut throat competitive pricing by the data center mechanical and electrical design companies in China. For example, they will only send technical liaison to be on-site once or twice just for project meetings during the build phase as it is the norm in China that the main contractor takes over the drawings and be responsible for the drawings thereafter, the design company endorse the drawings after the build programme is done with very little work to verify or inspect. More on this in my future post.

Electricity Supply (last mile)

Securing power supply for the data center facility is critical and our Beijing project in an industrial park had it secured through another company that purely acts as go-between with the power company that supply to the industrial park. We were promised the MV electrical cables will be laid and connected within six months. One month before this six months was up, the power company called for a meeting and a third party electrical cabling contractor was invited by the power company to be in the same meeting. We were told that the power company requires this third party electrical cabling contractor to be engaged through us or our middle man company to finish the last mile of electrical cabling from nearest power substation to our premises and additional cost of 1Mil RMB are to be paid by us to this new party. We were shocked and various ways to escalate, negotiate to take away this new party, and so forth took another half a year before we relented and find the budget to achieve this. The worst thing is, a new problem crops up afterwards that the power company said since we have delayed in contracting to this new party, the electrical cabling path has to be changed as the previous planned-for path to our premises is not possible since it had been given to another electrical cable for a separate project. The situation now is, we and the adjacent building complex owner are to share a MV transformer room that is to be located in one of our neighbor’s building ground floor and then the MV cable run from their complex to ours. Again, it is a take-it-or-leave-it attitude from the power company. Our project ended up taking three years to complete. So China speed can be fast, but it can also be slow and end up being a lousy compromise.

New Rules retrospectively applied to existing site

On the same Beijing project mentioned above with the last mile electricity supply obstacle, we have another problem which was new regulations imposed after the Beijing TV tower fire incident (2009) that we need to have two sources of water for fire fighters to use. They issued the regulations and all building that are to be retrofitted are to comply. When we bought over the former textile building complex and submitted our plan to change of use, the industrial park management and the fire service bureau issued the directive that we are to comply with the new rules. The complex as-is has only one water pipe which according to the new regulations is insufficient provision. We either dig a well connected to swimming pool size water storage tank or have two swimming pool size water storage tanks. We did the latter. Our green grounds were dug up and we put in the two 30m X 20m X 4m tanks with associated water pumps.

On-site inspection is a must

On two separate occasions while in Shanghai, I inspected two green field sites. Supposedly one is zoned and ready and the draft drawings looks promising until I visited the site after a two hours drive. It was farm land, with old residential single-level building with village folks still around and no road has been built. The plans are just paper, nothing has been done yet. After 5 years, the project has not taken off from the paper.

In a tier-3 (it is a China definition of their city standard, tier 1 cities are the likes of Beijing, Tianjin, Shanghai, Shenzhen, tier 2 are usually the provincial capitals and more developed cities) city in Anhui, we are to retrofit the ground and second floors of one 12 years-old factory building. The paper as-built drawing plans took 5 days to locate from the state-owned conglomerate’s building management company. We were pondering how best to re-locate the water sprinkler pipes on the ground floor such that the no-water time can be reduced to the shortest possible duration. When the building management office folks came by to look at the water sprinkler pipe, they made a comment that the water sprinkler pipe is dry. I thought the water sprinkler is a pre-action dry-sprinkler system but puzzled as it is a factory building that do not require such a complicated system. It turns out that I was mistaken. The water sprinkler system is supposed to be charged with water, but the pipe had leaks and some pipe or valves were broken and it has been dry for quite some years.

When the fire service bureau representative came by to review our drawing plans for the retrofitted floor, he nary inspected the relocated water sprinkler system. I reminded myself to always look for the nearest exit out of the building everyday I go to that building.

On an data center site inspection in GuangDong province, I came across a case whereby the design company endorsed original documentation showed dual incoming MV electricity supply while in fact the building has only one electricity supply.

Defect

How each country handle defect list is different. In China, defect list is sometimes overlooked if the main contractor’s boss and the project owner’s big boss are friend and that was the reason for awarding to that main contractor in the first place. When the relationship turn soar for whatever reason, the defect list grows and grows and it was used as a reason for non-payment of remaining sums of the project. It is not good to mix business and relationship.

Protest

A few days before the Chinese New Year holidays, a main contractor asked the sub-contractor to hire some workers to stand in front of the gate of a Shanghai data center company to block incoming car and worker transport buses. The police were called and these protestors were moved to the side of the entrance. After two days of this organized protests, the protest stopped as the police warned the sub-contractor of serious consequences. A romor has it that the sub-contractor’s manager and his colleagues responsible for organizing the protesters were “dealt” with.

Impulsive Decision and Big Grand Upscale (高大上)

Impulsive decision making (拍脑袋做决策) without expert advice by key decision maker is a major problem in Chinese organizations. Many cloud data center projects were announced throughout China, while only a fraction are actually completed and in operation. Most of them have not reached 50% occupancy and are loss making. One organization I know has its cloud strategy in 2015 to have 30,000 racks capacity in 3 years, without regards to market demand and the worst thing is those cities it planned to build its large scale cloud data centers (6,000-10,000 racks capacity each) are in less developed cities which do not need such scale without consideration of the competitors whom are not sitting still. The leaders wants big grand projects, the saying in Chinese is 高大上.

Finding the Gems among all the “promising” projects

In China and elsewhere in Asia, it is a challenge to sieve through all the announced plans by the local governments, the cloud players, and big data center park scale developers to see the gems and find the worthy project. There are data center projects that are more sure footed and data center service providers that are on firmer grounds and growing from strength to strength.

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From the trenches of Asia data center build projects

Rebel forces in the China Data Center Market

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The headline picture is ChongQing city LiangJiang New District XinShui High Tech Park, whereby there are five data center buildings built or in the process of construction. Two of them are by a server manufacturer called Inspur.

Chinese server manufacturers are going a completely different route versus non-Chinese server manufacturers. The likes of IBM, HP, Dell are offering their services on in-the-rack (i.e. server) and on-top-of-hardware (i.e. software and services), and are most definitely not building data center using their own money.

In China, it is the other way around. The Chinese server manufacturers are funding and building data centers through-out China in a frenzy!

The following five server manufacturers are Chinese owned companies:

  •  华为 (Huawei)
  • 浪潮 (Inspur)
  • 曙光 (Sugon)
  • 紫光 (Unisplendour – majority owner of H3C)
  • 中兴 (ZTE)

Besides they are all server manufacturers, they have built multiple large scale colocation data centers in China.

Huawei need no introduction, and perhaps ZTE as well. The rest of the server manufacturers mentioned above are relatively unknown outside of China. But, they are well known in China.

Huawei had built more than three cloud data center facilities in China (reference 1, 2). For the data center facility sector, Huawei has containerized data center solution, their own UPS, CRACs/CRAHs. LV switchboards, Back-up generator and chillers are sourced from external parties and re-badged as Huawei. They also have their own Huawei BMS software.

Both ZTE and Sugon are state-owned enterprises, while Inspur had transited from state-owned to private ownership, a portion of its shares is still partially owned by the Chinese government.

Inspur had built a data center facility with capacity of 8,000 racks in ChongQin for China Unicom as a built-operate model. (reference 3). Inspur announced plans to build seven large data center facilities and 50 smaller ones through-out China. (reference 3, 4)

Apple will use Inspur to build and operate a data center in China, according to news. (reference 5).

Sugon is well known in China for their super-computer cluster but they also have server line of product. They have built super-computer data centers in three cities (Wuxi, ChengDu, and Nanjing) and also cloud data centers in many cities. They had announced plans to cover 100 cities. They had ventured outside of China and built a data center in Slovenia for Slovenian ICT company Arctur.(reference 6, 7)

Unisplendour is public listed on Shenzhen stock exchange. Unisplendour had bought 51% of HP’s ownership of H3C and started making and selling HP servers that are branded as H3C in China. Unispendour announced that it will spend 2.2B RMB dollars to acquire or to build data centers. They had announced plan to build a data center facility in FangShan district of Beijing, the built-in area of the building will be 39,725 sqm (about 427,500 sqft) (reference 8).

ZTE had buit a data center facility with rack capacity of 13,000 racks in ChongQing for China Mobile as a built-operate model. (reference 9). ZTE is explicitly stating via their website that they provide a total data center solution from planning, building all the way to hand-over. (reference 10). They were looking outside of China to build data centers to meet the demand of Chinese companies that needs to set-up network point-of-presence (POP) or host their applications and data.

For example, in ChongQing, there are at least two server manufacturers involved in building and managing data centers on behalf of China Unicom and China Mobile, which in turn are for cloud service providers like Baidu and Tencent.

This has been going on for more than 4 years and thus quite a number of data center facilities had been completed> Inspur has been leading the charge, followed by the rest and not surprisingly Huawei was among the last to do so (Unisplendour is slow because it had only acquired the 51% shares of H3C in 2016). Huawei was probably hesitant to encroach onto IDC space but couldn’t forego the market share and potential revenue.

In China, the background and the incentives are vastly different from elsewhere which is why these manufacturers have enter the data center build-operate-(optional)transfer cycle. The data center builds are under an umbrella or a framework package deal whereby the city or district government wanted a public-private-partnership deal that is headlined by smart-city or government-cloud initiative, which usually ties together the following:

  • smart-city projects – communities (residents and busineseses) projects – employment (skilled manpower)- infrastructure (cloud, network, servers, storage) – data center

So the data center is the underpinnings for the whole deal, and the server manufacturers sees the volume of network/servers/storage required (when it is 10s of thousands of racks = 100,000 servers = multiple times investment versus data center core and shell plus electrical and mechanical infrastructure).

The server manufacturers will work with partners to deliver the entire package or supplement with their in-house capability to develop some of the big data / cloud solutions. So these server manufacturers view these huge projects as opportunities for growth. The other thing is that in China, there is very few big third party co-location data center service providers that has the reach and deep pockets compared to these mostly state-backed server manufacturers. Therefore, this creates a unique situation for the Chinese server manufacturers to enter the data center build-operate-(optional)transfer model. Note that these data centers are built by appointed main contractors and not strictly by these China server manufacturers.

Intertwined in this mix is that the Baidu/Alibaba/Tencent (BAT) are also one of such partner with the Chinese server manufacturers in those smart-city projects, thus not necessary that the server manufacturers are squeezing out the BAT in the smart city projects. For example, the Inspur built data center in ChongQing LiangJiang new district, is known as the Baidu ChongQing LiangJiang Data Center.

How this will play out in the future remains to be seen. For the moment, it is worth noting that the China server manufacturers can be a channel or a partner to work with in the China data center market as well as overseas.

Reference:

  1.  http://mt.sohu.com/20170308/n482702087.shtml
  2. http://news.eastday.com/eastday/13news/auto/news/china/20170209/u7ai6476772.html
  3. http://www.liangjiang.gov.cn/Content/2015-06/19/content_90027.htm
  4. http://www.ebrun.com/20150716/141014.shtml
  5. http://www.gold678.com/dy/P/67321072
  6. http://cn.chinagate.cn/news/2016-11/16/content_39716087.htm
  7. http://www.jifang360.com/news/2014422/n402358123.html
  8. http://news.idcquan.com/news/60548.shtml
  9. http://fiber.ofweek.com/2016-09/ART-210022-8120-30033419.html
  10. http://www.zte.com.cn/cn/solutions/cocloud/201508/t20150825_443862.html
Rebel forces in the China Data Center Market

China Data Center industry, stories from ground zero – 2nd edition

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New sub class of license of Cloud service in China – AWS / Chinese Investors buying UK’s GlobalSwitch / 21Vianet

It is mentioned in the data center/IDC circles in China that AWS is issued with a Cloud service provider license. This is a new sub-class of license under the IDC license scheme of Ministry of Industry and Information Technoloy (MIIT). Previously, AWS service in China is offered through local company SINNet that fronts, sells, and supports their service.

Before this use Cloud service provider class of license, cloud service providers are made to apply for the Internet Data Center (IDC) license (given the legislation update in 2014 by MIIT to require cloud service provider to get the then only available class of license which is IDC) which comes benefits of being able to operate as a IDC, i.e. selling bandwidth. Therefore while it is harder to get for the local cloud service providders, it is legislatively impossible for foreign cloud service providers like AWS, Microsoft, Google to apply for it. The story on the ground is that this new sub class of Cloud Service Provider license under the IDC class will not be able to offer bandwidth related service, it opens the way for foreign cloud service provider to offer their cloud service directly The details of this new sub class of Cloud Service Provider is unclear yet, it is expected to be officially announced soon.

A group of Chinese investors, lead by China DailyTech (previously a subsidiary of NasDaq listed TBOW:Trunkbow International which is a mobile payment service providers catering mainly to the three main China telecommunications service providers). DailyTech but has dissolved direct subsidiary relationship and became an independent company while having two of Trunkbow founders as its chairman and senior manager. Dailytech, together with China Aeronautical (a state owned enterprise) group’s subsidary AVIC and a few investors and partners (siad to include Sha-Steel, Huawei which are unconfirmed) have joined hands to offer to Aldersgate – the parent of Globalswitch to buy over Globalswitch’s data center assets. Dailytech has three data centers in China and it is belived that China Aeronautical group has half a dozen enterprise data centers in and around China. The DailyTech-AVIC consortium has been in talk with Aldersgate for more than a year, despite the news being said in September 2016 that they are in discussion on the deal.

Warburg Pincus, a private equity fund, had through its China office entered into a joint-venture agreement with 21ViaNet (Nasdaq: VNET) to create a data center asset focused company in China, initially filled with 21Vianet’s data center assets.

I was in Beijing in early December 2016 and met a China based private equity fund, injected with funds from several China listed public companies, are looking for foreign data center assets to buy. I will try to link them up with a couple of contact I have known.

With the presence of Aliyun and ZTE in data centers overseas, this outflow of money into foreign data centers are taking firmer shape.

Reference:

  1. http://news.sina.com.cn/o/2016-11-01/doc-ifxxfysn8409947.shtml
  1. http://finance.huanqiu.com/roll/2015-12/8155561.html

China Data Center industry, stories from ground zero – 2nd edition

Foreign Data Center Players in China

Published 29 August 2016

This is the sixth post in the series of posts on the China Data center market. You can find the earlier post to this series on linkedin under my posts or via https://newwitblog.wordpress.com/

  1. Background

China is a restricted market for telecommunications services that is closely related to the data center market. Internet Data Center (“IDC”) license is a category under the telecommunications regulations under the control of the China Ministry of Industry and Information Technology (“MIIT”).

Foreign Data center players do participate in the China Data center market, but there are some misconceptions of how these data center players can get into the market such as do they have exceptional privilege through some special relationships.

The apparently handful of foreign data center players that are in the China Data center market appears to support the above impression. We hear about names such as NTT, Equinix (establish presence in China in 2014 through buying AsiaTone), and PacNet. The absence of Digital Realty and foreign third party wholesale co-location service provider seem to further enhance the impression that only some special ones get to participate in the China Data center market. This is largely not true.

We tend to look for foreign data center giants like DRT, Equinix and then have an impression that China do not have a presence or are not welcoming foreign data center players. This post will hopefully help to dispel some myths and provide some insights to you.

 

  1. Truths or myths

There are some long held beliefs regarding whether foreign data center player can participate in the China Data center market. While some are true, and there are some that are purely outdated or misinterpretation. Some of the often talked about points about foreign data center participation in the data center market are:

  1. China do not welcome foreign data center player
  2. China allow foreign data center player, subject to 50% foreign ownership
  3. If a foreign data center player is in China or is talking about building data center in China, they must have special relationship with the government officials (it implies that they either somehow have an IDC license that is normally not allowed)
  4. There is not much presence of foreign data center player, only PacNet and Equinix are there
  5. Owning and operating a data center in China is very risky for a foreign data center company, because you are violating the rules
  6. The local police (Public Security Bureau – 公安) will enter your premises and take away data (hard drive) without any warning

Let us get the first three points above out of the way with reference to the picture below.

China do allow foreign company that build data center building with mechanical and electrical infrastructure, or more generally those Data center REIT player or third party wholesale colocation service provider that do not provide ISP connectivity or IT hardware (note: from 2015 onwards, colocation service provider that lease IT hardware or provide cloud service to customer are required to apply for an IDC license).

China also allow a joint venture company, with Hong Kong or Macau based company holding up to 50% of the shareholdings while Chinese shareholders holding at least 50%, to apply for an IDC license.

For the time being, China do not allow foreign majority owned company to apply for IDC license.

In all likelihood, the situation of foreign data center player is participating in the China data center market by not getting involved with the network connectivity or providing server leasing or cloud service. Let us hold the presence of Amazon Web Services and Microsoft’s Azure in China till to later part of this topic.

As for the last point, most country’s telecommunications or counter-terrorist act or some regulations that empowers the police to seize data or hard drive. I have not heard of any actual case.

 

  1. Regulation of an Internet Data Center

We talked about local data center player having to apply for an IDC license. It is the same for a joint-venture data center company that has any shareholder from Hong Kong/Macau and within the prescribed 50% shareholding limit. They can do the following:

  1. Apply for a nation-wide license with the Ministry of Industry, Telecommunications and Industry (“MITI”). The licensee still has to register their awarded nation-wide license with each city’s Communications Administration that they intend to have a data center facility. So having a nation-wide license doesn’t automatically mean you can build your IDC anywhere. This is the confusing part, besides it may be an obstacle to foreign data center player which intend to abide by the written rule to apply through a 50-50 joint venture with a local partner for the nation-wide license which may not be granted in the first place beside being within the rule and still get rejected even if they somehow managed to get a nation-wide license with their registration in the city that they intend to have a data center.
  2. Apply for a provincial wide IDC license with that particular province’s Communications Administration and do so for each city. The licensee still has to register their awarded nation-wide license with each city’s Communications Administration bureau that they intend to have a data center facility.
  3. Apply for a city specific IDC license with that particular city’s Communications Administration and do so for each city.

Usually, there is not much of an issue for a local Chinese company to apply for and receive their license. In 2014, The MIIT ministry issued a document (http://www.miit.gov.cn/n1146285/n1146352/n3054355/n3057709/n3057717/c3651787/part/3651788.doc ), this document is significant as it contain a statement

   申请经营IDC业务的企业,应利用自有或租用的机房和场地,以外包出租的方式为用户的服务器等互联网相关设备提供放置

   代理维护、系统配置及管理服务,以及提供数据库系统或服务器等设备的出租以及存储空间的出租、通信线路和出口带宽的代理租用和其他应用服务。

In English it meant an IDC license is required should the data center service provider provides colocation space for client to collocate the client’s IT equipment, or if the cloud service provider provide compute and data storage resource.

AWS and Microsoft Azure cannot officially front and provide their cloud service, and instead have to rely on their China partners (AWS is with SINNet, and Microsoft Azure is partnering 21ViaNet) to provide their cloud services.

 

  1. List of Foreign Data Center Player in China

From what we have learned, there are about twenty and possibly more foreign data center players that are in the China Data center Market. In our case, foreign is defined as not from mainland China so Hong Kong is counted as outside of mainland China given that the regulations treats Hong Kong or Macau registered companies as a separate group of companies from the mainland China companies. A list of some of these foreign data center players are listed as below:

  1. AsiaTone
  2. CITIC Telecom CPC
  3. DXYNet
  4. Hong Kong TownGas
  5. Hong Kong New World Telecom
  6. PCCW (Guangzhou)
  7. Equinix (through purchase of AsiaTone’s China data centers)
  8. Fujitsu
  9. KDDI Telehouse
  10. NTT
  11. British Telecom (partner with 21ViaNet), http://www.china.org.cn/english/BAT/28362.htm
  12. AT&T (through Shanghai Symphony Telecom, 25% holdings, a joint venture with China telecom),
  13. CloudSite (Tianjin)
  14. CenturyLink (sits within GDS) through Neusoft
  15. STTelemedia (through investment into GDS)
  16. Telstra/Pacnet
  17. Foxconn
  18. HP (reduced its shares in H3C-华三通信网络, selling 51% to Sugon)
  19. TIS-Hitech Tianjin (Japan’s TIS)
  20. SinoCloud (Guiyang, 4,800 racks capacity) (SinoCloud is previously called Armarda Group, an listed entity on the Catalist board of Singapore Stock Exchange)

AsiaTone had sold six of its data centers in China and Hong Kong to Equinix back in 2012, AsiaTone is still building new data centers in China, including Shenzhen, Shanghai’s WaiGaoQiao area, and Nantong city in JiangSu province.

IBM had sold of Tianjin BlueTek (a data center service provider) to TeamSun. If not, IBM would be on the above list.

There are a lot more announcement of possible new entrants into the China data center market such as Charoya, Hitachi Data Systems, South Korea’s SK Broadband, Digital Realty, and AirTrunk intention to build new data center in China.

Temasek Holdings, owns 13.1 per cent of 21Vianet, with 5.8 per cent voting power for its $74 million investment in the data centre company. For the Singapore wealth fund, this marks a second major investment into the 21Vianet. Last year, Temasek had invested $100 million to buy around 10 per cent of NASDAQ-listed 21Vianet.

There are a number of private equity funds that operates in China and Hong Kong that has China data center buildings in their portfolio of assets. For example, Cybenaut Investment Group is started and based in China, it is open to foreign funds for investment. Cybernuat has data center investements in ZhongWei city of NingXia province, and GuiYang of GuiZhou province.

 

  1. Various Options for Foreign Data Center Player to enter the China Data Center market

Generally, there are various options for a foreign data center company to go into the China Data Center market:

  1. Focus on only the building and M&E infrastructure

This is the problem-free option. It is still not completely easy going forward as there can be problems in getting land, power, and sales going but it is the least difficult option amongst the options. This is also where the local large enterprises can and do compete in plus they have less of a problem to go upstream, meaning they can get an IDC license and package the whole data center suite/rack + connectivity and makes it easier for the client. Plus land plot allocation is usually quite sizable in China, and therefore the investment and capacity will be quite huge.

  1. Partner with a local partner that has IDC license

Most of the foreign data center company operate using this mode. There is slightly different variations in using this model of operating in China, depending on what the local IDC and foreign data center are looking for in this type of partnership and what their plans are going forward. More on this in the next section of this post.

  1. Establish Hong Kong / Macau entity to go into joint-venture with a China company, and apply for a IDC license

So far, mainly the Hong Kong based companies like HKT, Hong Kong TownGas went about through this mode. PacNet (now owned by Telstra) previously go by this way to have their Hong Kong entity register a China JV called PacNet Business Systems that they own 50% with the other half by a China state-owned enterprise, which is how they get the country-wide IDC license. It is still likely to continue to operate in this manner after Telstra has bought PacNet.

  1. Invest into a Chinese Data Center company

This is fairly easy for Chinese Data Center companies which are listed in foreign stock exchange. For the non-listed types, the local Chinese data center company typically will organize itself into two companies (or more, depending on its business model) whereby one of the entity holding an IDC license will be 100% owned by local Chinese shareholders or up to 50% by Hong Kong or Macau but this has to be pre-approved by the government ministry.

I have had discussions with foreign data center companies that are exploring options and partnership opportunities with potential local Chinese data center companies. It is a fairly involved process just on business compatibility itself.

  1. Points to consider for a Data Center company

There are some important points to be aware of about the China data center market.

  1. Location

This is not about site selection. China is a large market and the data center market is not a single homogenous market. Beijing, Shanghai, GuangZhou/ShenZhen, ChengDu/ChongQinq and other up and coming regions such as the designated cloud development zones are sub-markets to consider. And government support (lower taxes) or restrictions (such as Beijing city discouraging new data center build unless it is cloud data center with PUE less than 1.5) are points to consider.

  1. Policy

Different regional/district/county government will have different incentives to attract new data center development. Beijing and Shanghai are not so welcoming to new data center development while districts in neightbouring provinces like LangFang and KunShan will be more welcoming in terms of possibilities of tax incentives and land allocation.

  1. Competition

The major data center hubs in China are high competitive. The dominant telco carriers’ data centers generally are doing well while China Telecom or China Unicom fair better in Shanghai or Beijing respectively and their pricing is used for baseline for the mid to low end of the co-location and hosting business. In general, wholesale co-location data center service segment is relatively new in China, with Range International (LangFang), Cybernaut’s ZhongWei project, and those cloud development zones/parks coming up in various parts of China dominated by the large Chinese state-owned enterprises (e.g. AtHub at ZhangBei, China telecom in Inner Mongolia and GuiYang) and potentially Charoya, it is interesting to see if this sort of scale will be a major trend in China.

  1. Network

Network connectivity is very important for a data center. While a wholesale co-location data center service providers and the data center REIT players do not play on the upper layer on the co-location hosting stack, their customers do care that they can easily get the network connectivity that they will need. In this aspect, the right partner will have a fatter sales pipelines and in some cases cost advantages compared to others and this is an area that requires greater scrutiny and analysis.

  1. Why a Local IDC Goes into Partnership with a Foreign Data Center Player

While partnering with a local IDC company is the most common mode of foreign data center companies entering the China data center market, there are some key points that I learned from both sides.

From the Chinese data center companies, they seek partnership from foreign data center companies in terms of three areas:

  1. Capital injection
  2. Foreign clients
  3. Technical know-how

With capital injection and a pipeline of foreign clients, the local Chinese data center company will greatly reduce risk when come to scale and new data center development. The technical know-how is a rich topic in itself as we heard cases of complaints of service level gap and ability to fully appreciate the needs of MNC clients; suffice to say on the surface that this point on technical know-how involves technical design & implementation, and operational knowledge to meet more stringent SLAs and expectations of foreign clients which ties in with point 2 above.

For foreign data center companies that have been established for quite a number of years and have a portfolio of Fortune 500 customers, the consideration for partnership with local data center company can be quite different depending on which layer of the market they focus on. Below are some of the points to consider:

  1. Financial risk
  2. Long term strategy
  3. Local demand
  4. Access to the IDC license

The financial risk can be capital required, repatriation of profits, profit margin required, ownership/control etc.

The ambition and long term goals of both foreign and local partners have to be roughly aligned. There is no point for a large Chinese state-owned enterprise to go into partnership with a well-known foreign cloud service provider if the local Chinese partner also have a cloud service to offer. However, if the foreign data center company has had the full stack of data center services from cloud service (refer to diagram in earlier part of this post) to telecommunications services and then to pure co-location space leasing, then it will need to cut down its suite of services to pure co-location space leasing. It will also be a problem if the state-owned enterprise is “forced” to list on local bourse while the foreign partner looks to list outside of China. It is better to find out each other’s ambitions early on.

The foreign data center company will want a certain commitment to capacity when considering the investment or a new data center build which can be a sticky point. Last but not least, be it for potential client demand or norm, access to network connectivity via a partner or channel that has IDC license will affect the confidence in the joint venture. If the demand is driven from the foreign data center company’s portfolio of clients, then it is a strong push although there rarely do such case come up because most if not all foreign clients of the foreign data center company would have already been using local data center services in China or Hong Kong, and at most has incremental demand rather than demand for big new capacity.

The issue of IDC license will need to be dealt with in each city that the joint venture plans to build data center, even if the joint venture is will only focus on wholesale co-location service as the local authority may only grant land for leasing if it comes under the cloud data center development headline as part of the local government KPI (cloud data center is required to be licensed under the Chinese government regulations).

Surprisingly there are plenty of local candidates for partner. It is however fairly cumbersome to find out their strengths and ambitions. The previous posts on local Chinese data center companies is one source, another would be list of large well-funded state-owned enterprises that has sizable internal demand and wants to build on it to move into the smart city sector or cloud service sector as the prior requires strong local knowledge and relationship while the second is a controlled and licensed sector.

There are some successful examples of partnerships between local Chinese and foreign data center companies, such as NTT with SDS, KDDi with SDS, KDDi with SINNet. Cloud companies Amazon with SINNet and Microsoft with 21Vianet for its Azure services. There are some examples of partnership by foreign data center companies with local government-owned companies which meant they are tied to each local government’s jurisdiction such as the case of CloudSite joint-venture with Tianjin economic zone’s subsidiary.

  1. Summary

The China Data Center market is not the forbidden city and even the forbidden cities has doors for entering and exiting the palace. There has been proven cases of foreign data center companies that participate in China and it is more than a handful of foreign companies. China companies like Alibaba, Tencent, 21ViaNet have came out of China have started building data centers in Singapore, Middle East, Europe and US.

While Hong Kong has been considered the gateway for data and network for China, data center companies have thrives in the China data center market as the internal demand is greater than China network traffic that goes through Hong Kong. The China Data Center market is part of the global data center market that should be looked at in depth and a strategic market in Asia Pacific region.

Reference:

  1. http://www.chinaz.com/news/2012/1130/284226.shtml
  2. http://www.slideshare.net/tgrhm/datacenter-and-cloud-developments-and-challenges-in-china
  3. http://www.chinalawinsight.com/2013/11/articles/corporate/mergers-acquisitions/%E5%A4%96%E5%9B%BD%E4%BA%91%E8%AE%A1%E7%AE%97%E6%9C%8D%E5%8A%A1%E6%8F%90%E4%BE%9B%E5%95%86%E5%9C%A8%E4%B8%AD%E5%9B%BD%E9%9D%A2%E4%B8%B4%E7%9A%84%E4%B8%BB%E8%A6%81%E7%94%B5%E4%BF%A1%E7%9B%91%E7%AE%A1/
  4. http://www.zwezx.com/a/idc/yunjisuan/2016/0405/6454.html
  5. http://www.lunwenstudy.com/mba/mbascyx/52650.html
  6. http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementLast12Months&F=RWRAW9T6VQN6IO55&H=c8bc90272801af5cb2ddda1de7a9d458e0ed2f10998dcbc8b6dfb32182a80078&fileId=SinoCloud%20-%20Press%20Release%20-%2023%20March%202016%20SCG%20v3.pdf
  7. http://www.ejinsight.com/20140214_views_data-center/
  8. http://www.datacenterdynamics.com/content-tracks/colo-cloud/equinix-signs-up-datang-telecom-as-a-channel-partner-in-china/96448.article
  9. http://www.dealstreetasia.com/stories/temasek-kingsoft-xiaomi-invest-296m-in-21vianet-1224/
  10. http://www.compotech.com.cn/cms/a/xinwenxianshang/2016/0826/53370.html
  11. Digital Realty (announced in 2013 to want to invest into China from 2014) – http://www.scmp.com/business/companies/article/1217705/digital-realty-gears-china-investments

 

Foreign Data Center Players in China

China Data Center Market – Foreign Data Center Player – Part 1 of 2

Published 27 August 2016

This is the sixth post in the series of posts on the China Data Center market by me and a colleague. You can find the earlier post to this series on linkedin under my posts or via https://newwitblog.wordpress.com/

  1. Background

China has a growing data center market that has seen double digit growth since 2008.

Foreign Data Center companies are in the China Data Center market, but there are some misconceptions of how these data center players can get into the market such as do they have exceptional privilege through some special relationships.

The apparently handful of foreign data center players that are in the China Data Center market appears to support the above impression. We hear about names such as NTT, Equinix (establish presence in China in 2014 through buying AsiaTone), and PacNet. The absence of Digital Realty and foreign third party wholesale co-location service provider seem to further enhance the impression that only some special ones get to participate in the China Data Center market. This is largely not true.

We tend to look for foreign data center giants like DRT, Equinix and then have an impression that China do not have a presence or are not welcoming foreign data center players. This post will hopefully help to dispel some myths and provide some insights to you.

2. Truths or myths

There are some long held beliefs regarding whether foreign data center player can participate in the China Data Center market. While some are true, and there are some that are purely outdated or misinterpretation. Some of the often talked about points about foreign data center participation in the data center market are:

  1. China do not welcome foreign data center player
  2. China allow foreign data center player, subject to 50% foreign ownership
  3. If a foreign data center player is in China or is talking about building data center in China, they must have special relationship with the government officials (it implies that they either somehow have an IDC license that is normally not allowed)
  4. There is not much presence of foreign data center player, only PacNet and Equinix are there
  5. Owning and operating a data center in China is very risky for a foreign data center company, because you are violating the rules
  6. The local police (Public Security Bureau – 公安) will enter your premises and take away data (hard drive) without any warning

Let us get point 1, 2, and 3 out of the way with reference to the picture below.

China do allow foreign company that build data center building with mechanical and electrical infrastructure, or more generally those Data Center REIT player or third party wholesale colocation service provider that do not provide ISP connectivity or IT hardware (note: from 2015 onwards, co-location service provider that provide IT hardware or cloud service to customer are required to apply for an IDC license).

China also allow a joint venture company, with Hong Kong or Macau based company holding up to 50% of the shareholdings while Chinese shareholders holding at least 50%, to apply for an IDC license.

For the time being, China do not allow foreign majority owned company to apply for IDC license.

In all likelihood, the situation of foreign data center player is participating in the China data center market by not getting involved with the network connectivity or providing server leasing or cloud service. Let us hold the presence of Amazon Web Services and Microsoft’s Azure in China till to later part of this topic.

As for point number 6, most country’s telecommunications or counter-terrorist act or some regulations that empowers the police to seize data or hard drive. I have not heard of any actual case.

3. Regulation of an Internet Data Center

We talked about local data center player having to apply for an IDC license. It is the same for a joint-venture data center company that has any shareholder from Hong Kong/Macau and within the prescribed 50% shareholding limit. They can do the following:

  1. Apply for a nation-wide license with the Ministry of Industry, Telecommunications and Industry (“MITI”). The licensee still has to register their awarded nation-wide license with each city’s Communications Administration that they intend to have a data center facility. So having a nation-wide license doesn’t automatically mean you can build your IDC anywhere. This is the confusing part, besides it may be an obstacle to foreign data center player which intend to abide by the written rule to apply through a 50-50 joint venture with a local partner for the nation-wide license which may not be granted in the first place beside being within the rule and still get rejected even if they somehow managed to get a nation-wide license with their registration in the city that they intend to have a data center.
  2. Apply for a provincial wide IDC license with that particular province’s Communications Administration and do so for each city. The licensee still has to register their awarded nation-wide license with each city’s Communications Administration bureau that they intend to have a data center facility.
  • Apply for a city specific IDC license with that particular city’s Communications Administration and do so for each city.

Generally, there is not much of an issue for a local Chinese company to apply for and receive their license. In 2014, The MIIT ministry issued a document (http://www.miit.gov.cn/n1146285/n1146352/n3054355/n3057709/n3057717/c3651787/part/3651788.doc ), this document is significant as it contain a statement

申请经营IDC业务的企业,应利用自有或租用的机房和场地,以外包出租的方式为用户的服务器等互联网相关设备提供放置

代理维护、系统配置及管理服务,以及提供数据库系统或服务器等设备的出租以及存储空间的出租、通信线路和出口带宽的代理租用和其他应用服务。

In English it meant an IDC license is required should the data center service provider provides colocation space for client to collocate the client’s IT equipment, or if the cloud service provider provide compute and data storage resource.

AWS and Microsoft Azure cannot officially front and provide their cloud service, and instead have to rely on their China partners (AWS is with SINNet, and Microsoft Azure is partnering 21ViaNet) to provide their cloud services.

4. List of Foreign Data Center Player in China

There are more than a dozen foreign data center players that are in the China Data Center Market:

  1. CenturyLink (sits within GDS) through Neusoft
  2. CITIC Telecom CPC
  3. DXYNet (Hong Kong)
  4. Hong Kong TownGas
  5. PCCW (Guangzhou)
  6. British Telecom (partner with 21ViaNet),http://www.china.org.cn/english/BAT/28362.htm
  7. AT&T (through Shanghai Symphony Telecom, 25% holdings, a joint venture with China telecom),
  8. Equinix (through purchase of AsiaTone’s China data centers)
  9. Fujitsu
  10. KDDI-Telehouse
  11. NTT
  12. STTelemedia (through investment into GDS)
  13. Telstra/Pacnet
  14. Foxconn
  15. HP (reduced its shares in H3C-华三通信网络, selling 51% to Sugon)
  16. Japan’s TIS, TIS-Hitech 天津提爱斯海泰信息系统有限公司 (Japan’s TIS)http://www.tis-hitech.com/index.html
  17. SinoCloud (Guiyang, 4,800 racks capacity) (SinoCloud is previously called Armarda Group, an listed entity on the Catalist board of Singapore Stock Exchange)

IBM had sold of Tianjin BlueTek (a data center service provider) to TeamSun. If not, IBM would be on the above list.

There are others that are in various stages of planning to build or are studying to go into China such as Charoya. Digital Realty (announced in 2013 to want to invest into China from 2014) – http://www.scmp.com/business/companies/article/1217705/digital-realty-gears-china-investments

Temasek Holdings, owns 13.1 per cent of 21Vianet, with 5.8 per cent voting power for its $74 million investment in the data centre company. For the Singapore wealth fund, this marks a second major investment into the 21Vianet. Last year, Temasek had invested $100 million to buy around 10 per cent of NASDAQ-listed 21Vianet.

I am fairly certain that there are more foreign data center companies that are operating in China that I do not know of. The above list may not be accurate.

5. Various Options for Foreign Data Center Player

Generally, there are various options for a foreign data center company to go into the China Data Center market:

  1. Focus on owning the building and M&E infrastructure, and sell the data center space through local channel or partner

This is the problem free way. However, it is not easy more in the sense that land plot allocation is usually quite sizable in China, and therefore the investment and capacity will be quite huge.

  1. Partner with a local partner that has IDC license

Most of the foreign data center company establish their presence and operate using this mode.

  1. Establish Hong Kong / Macau entity to go into joint-venture with a China company, and apply for a IDC license

So far, mainly the Hong Kong based companies like HKT, Hong Kong TownGas went about through this mode.

  1. Invest into the local Chinese Data Center company

This is fairly easy for 21Vianet which is listed in foreign stock exchange. However, the local Chinese data center company will need to split its IDC license holding entity with the data center asset because the IDC license holding entity is not allowed to be foreign owned (except up to 50% by Hong Kong or Macau, but it any change has to be pre-approved).

Part 2 to be continued.

Reference:

  1. http://www.chinaz.com/news/2012/1130/284226.shtml
  2. http://www.slideshare.net/tgrhm/datacenter-and-cloud-developments-and-challenges-in-china
  3. http://www.chinalawinsight.com/2013/11/articles/corporate/mergers-acquisitions/%E5%A4%96%E5%9B%BD%E4%BA%91%E8%AE%A1%E7%AE%97%E6%9C%8D%E5%8A%A1%E6%8F%90%E4%BE%9B%E5%95%86%E5%9C%A8%E4%B8%AD%E5%9B%BD%E9%9D%A2%E4%B8%B4%E7%9A%84%E4%B8%BB%E8%A6%81%E7%94%B5%E4%BF%A1%E7%9B%91%E7%AE%A1/
  4. http://www.zwezx.com/a/idc/yunjisuan/2016/0405/6454.html
  5. http://www.lunwenstudy.com/mba/mbascyx/52650.html
  6. http://infopub.sgx.com/Apps?A=COW_CorpAnnouncement_Content&B=AnnouncementLast12Months&F=RWRAW9T6VQN6IO55&H=c8bc90272801af5cb2ddda1de7a9d458e0ed2f10998dcbc8b6dfb32182a80078&fileId=SinoCloud%20-%20Press%20Release%20-%2023%20March%202016%20SCG%20v3.pdf
  7. http://www.ejinsight.com/20140214_views_data-center/
  8. http://www.datacenterdynamics.com/content-tracks/colo-cloud/equinix-signs-up-datang-telecom-as-a-channel-partner-in-china/96448.article
  9. http://www.dealstreetasia.com/stories/temasek-kingsoft-xiaomi-invest-296m-in-21vianet-1224/
China Data Center Market – Foreign Data Center Player – Part 1 of 2

China Data Center Market – Local Data Center Players – Part 1 of 2

Published 4 August 2016

This is the fourth post in the series of posts on the China Data Center market by me and a colleague. You can find the earlier post to this series on linkedin under my posts or via https://newwitblog.wordpress.com/

Please take note that it is sometimes necessary for the sake of continuity of writing a post to repeat content from my earlier posts here. I still encourage you to read the entire series from the start.

When I began to write on this topic of Local China data center players, I soon realized that the topic itself will be too huge to be contained within one post, so midway through writing on this topic, I have to split this into a two separate posts.

 

  1. Background

By virtual of the duopoly telecommunications network controls by China Telecom (“CT”) and China Unicom (“CU”), they are the dominant data center player in China. The large enterprises, with exception of property companies and e-commerce companies, are used to be all-in-one, i.e. one big state owned enterprise may have everything from housing projects for its staff and even its own police station, for example until recently, the China Railway company still has its own police force that police its trains and stations. Outsourcing is at a low percentage probably under 10% of the Chinese enterprises uses some form of IT or data center outsourcing especially so for the large state owned enterprises. Nevertheless, optimist will look at this phenomenon and consider this an uptrend opportunity.

In addition, demand for data center space is not huge until after the mid 2000s, therefore those computer rooms that CT and CU have in their telecommunications facility grew at a modest pace and satisfy the early demand. It is only after the ecommerce, online content and video content, gaming have taken off in China coupled with fiber and mobile broadband roll-outs that created the demand. CT and CU cannot meet all the demand and they are also not incentivized to build to demand (they are state owned enterprise after all), which saw the birth of data center service providers that either build for CT and CU (build-own-operate data center operator with CT and CU brand outside their building) or third party colocation data center providers such as 21ViaNet, Centrin, and GDS. China Mobile (“CM”) is also picking up speed in their roll out of data centers (for example, CM have grown from only two data centers in Shanghai in 2014 to having six by end 2016).

 

  1. Definition of a Data Center

Very early on, China government require IDC, which is defined as a data center that also provides Internet connectivity to apply for a license. If an IDC intends to have data center across China, they can do the following:

  1. Apply for a nation-wide license with the Ministry of Industry and Information Technology (“MIIT”). The licensee still has to register their awarded nation-wide license with each city’s Communications Administration bureau that they intend to have a data center facility. So having a nation-wide license doesn’t automatically mean you can build your IDC anywhere. This is the confusing part and can be challenging even for local Chinese data center player. This has the highest requirements for the applicant to have strong financials and also at least 5 years of business operations.
  2. Apply for a provincial wide IDC license with that particular province’s Communications Administration and do so for each city. The licensee still has to register their awarded nation-wide license with each city’s Communications Administration bureau that they intend to have a data center facility.
  3. Apply for a city specific IDC license with that particular city’s Communications Administration and do so for each city.

Usually, there is not much of an issue for a local Chinese company to apply for and receive their license. The only time when there is a problem is when the central government or the Beijing or Shanghai city government decided to closed the application process for a year or more. In 2008, the central government stop accepting or approving any IDC license application. This was reopened in December 2012 but only to local Chinese companies to apply. Together with the reopening of IDC license application, MIIT issued a document (http://www.miit.gov.cn/n1146285/n1146352/n3054355/n3057709/n3057717/c3651787/part/3651788.doc ), this document is significant as it contain a statement

“申请经营IDC业务的企业,应利用自有或租用的机房和场地,以外包出租的方式为用户的服务器等互联网相关设备提供放置、代理维护、系统配置及管理服务,以及提供数据库系统或服务器等设备的出租以及存储空间的出租、通信线路和出口带宽的代理租用和其他应用服务。”

The above statement meant that an IDC license is required should the data center service provider provides colocation space for client to collocate the client’s IT equipment, or if the cloud service provider provide compute and data storage resource. Therefore prior to December 2012, if previously MIIT published rules and regulations was silent about a data center service provider that do not provide Internet connectivity may interpret that they don’t need an IDC license, now it is clear that a license is required. In the case of a cloud service provider, it is also now clear that they also need to apply for an IDC license. Such is why there was a scramble by Aliyun (Alibaba’s cloud service company) and other China cloud service providers applying for the IDC license.

The only grey area is when it comes to wholesale colocation service provider that generally lease its building cum M&E infrastructure to colocation/hosting/enterprises, these wholesale colocation data center service rightfully “should” not need to have an IDC license. Given that, to the best of our knowledge, it is of no consequence or concern since there is no pure play wholesale colocation data center service provider in China yet while Charoya is a notable possible first even though it is considered a foreign company.

In May 2013, MIIT allows the application from joint venture whereby the up to 50% shares is a foreign party which has to be an entity based in Hong Kong or Macau.

Generally, it is easier and faster for a state owned enterprise to get the nation-wide and provincial wide IDC license.

 

  1. Telecommunications Network

China has an oligopoly telecommunication market that has very restrictive conditions for foreign players except for hardware and software vendors. An except was made in the early 2000s when China had accepted AT&T into the market via a joint venture via a minority holdings of 25%, and PacNet (previously Pacific Internet, and PacNet has been bought by Telstra, more on AT&T and PacNet to be in the next article on foreign data center players in China) when it has the 50% shares in a joint venture with an state-owned enterprise that is mainly operating in the Guangdong province. It is more of a gesture as China is not active in accepting foreign telcos into the telecommunications, data center and nowadays cloud services sectors as will be covered in the next post on foreign data center players in China).

As a result of the telecommunications carrier consolidation in 2008, China’s telecommunication industry is dominated by China Telecom (“CT”), China Unicom (“CU”), and to a lesser degree, China Mobile (“CM”). CHINANET and UNINET, operated by China Telecom and China Unicom respectively, are the largest networks in China, with CHINANET operating predominantly in southern China while UNINET operates predominantly in northern China. In another consolidation in end 2015 and completed by January 2016, China Railway Telecom (中铁通) has been bought by China Mobile and renamed as China Mobile TieTong (中移铁通). Prior to the take-over, China Railway Telecom used to be a fully licensed telecommunications carrier that operates the telecommunication network of China Railway stations and also enterprises that are related to the China Railway group. Now there is only one other fully licensed telecommunications carrier left besides the 3C and it is the China EduNet, they serve their own closed group which is the high schools/universities/research institutes, which therefore are included here for completeness purpose only.

The three China telecommunications players, China Telecom (“CT”), China Unicom (“CU”) controls the fixed line and China Mobile (“CM”) has majority of the mobile market with CT and CU taking up the rest of the mobile market. Let us for simplicity sake call these three state owned telecommunications players “3C” (local calls them 三大运营商).

CT has built and is still the main operator of the national network backbone and network access points in the three major hubs (Beijing, Shanghai, and Guangzhou) and the central government has funded CT to build 7 new regional hubs: ChengDu, Wuhan, Xi’an, Shenyang, Nanjing, ChongQing, and Zhenzhou, which were completed in 2014. These regional NAPs alleviate the need for network traffic to traverse across the country to the three national NAPs and thus reduces congestion and allows regional network traffic to stay regional and attracts ICPs to move some of their regional-targeted content and applications to be closer to these major cities.

Prior to the addition of those 7 regional hubs, network traffic between neighbouring provinces or even cities in the same province will have to route to one of the three major national hubs and sometimes another hob to one other hub if your source IP and the destination IP belongs to different ISP (e.g. source IP is CU going to server IP by CT).

These state owned telecommunications giants builds the data center market in a reactive manner for most of 2000s. CT has most of the data center market in the southern halves of China while CU has more of the data center market in the northern halves. So you will find CT having most of the data centers in Shanghai while CU has more data centers in Beijing. CM had focused on the mobile network market and it has been trying to catch up to grab more of the data center business due to it being relatively new in the enterprise market.

Data center clients, be it local or foreign based, will soon get into the habit of looking for IDC instead of data center. Why? Because a data center cannot serve the client’s need if it cannot talk to the world outside of the data center, and this comes under the definition of IDC in the case of China. Unlike other liberalized telecommunications market, in China, your data center will not attract any ISP unless it has a fiber connection from any of the 3C, but this may come as a surprise to the foreign data center player or foreign based client of a data center, the 3C will generally not budge to bring their fiber connection to a data center even if you pay them. You will have to be a IDC and signs up a bandwidth bundle that is expansive. You do not start at the same starting line even compared to a local data center that has an IDC license. There are more reasons behind the difficulties faced by any data center player be it local or foreign but it is especially so for the foreign data center players and some of it will be covered in the next post in this series.

One thing about the local China data center market is that 3C do not allow the one another’s fiber connection into their own IDC. A third party IDC can bring fiber connections from one or more telecommunications players so this is an advantage that the third party IDC has over the data center owned by any of the 3C. However, the 3C controls the most important resource for a data center – i.e. the telecommunications network connection.

There is one odd thing with the Internet routing within China: the China Internet hubs are still mainly in Beijing, Shanghai, and GuangZhou. If the carriers don’t play nice, all your traffic may get routed to the furthest network hub instead of the closest one. For example, even if you are in Shanghai, your IP traffic may get to Beijing and back and vice-versa each time a CT user access a server collocated in your Shanghai data center. The customer will demand better routing or he may consider to move to another Shanghai data center.

 

  1. China Data Center Service Providers by Categories

The requirement by government for any cloud or colocation data center service provider to register for an IDC license have caused a scramble for lots of data center service providers as well as cloud service providers to surface.

The list of participants in the Data Center market are diverse, below is list of categories of data center market participants:

  • Telcos (CT, CM, CU)
  • 3rd party Data Center Colocation Service Provider (e.g. 21ViaNet, DrPeng, GDS, SDS, SINNet)
  • Retail hosting (too many in this space which includes most small ISPs and small IDCs, e.g. 21ViaNet sells server colocation as well)
  • Cloud Service Provider (e.g. Aliyun, Baidu Cloud, ZTE, Huawei)
  • Build-own-operate pure play facility provider (e.g. Athub, Cybernaut, Farvin). Build-own-operate pure play facility provider will build the building and the M&E but will leave the IT to the client. Generally these providers work on a one-to-one basis, i.e. they have only one client for the entire facility.
  • Others: incidental players such as IT service providers, IT security vendors having small private suites/cages or even just a rack and rent out to customers. It may also be large hardware manufacturers such as Inspur that build and operate an entire data center building with 2,000 racks including IT and private cloud for ChongQin smarty city project. Sugon and also ZTE have also done similar build and operate on the same basis as Inspur. Inspur, Sugon and ZTE are all state owned companies. Wanda, the largest commercial and shopping property developer and owner in China, opened a colocation data center which is an ambitious project that targets to host ecommerce and large retail chains providing an eco-system of online-offline through-chain shopping and fulfilment service that pure ecommerce player like Alibaba’s Taobao cannot provide.

China Cloud IDC layers

We will further elaborate the categories of 3rd party Data Center Colocation Service Provider and Build-own-operate pure play facility providers in the next post on the China Data Center players.

 

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

The rest of the series, not meant to be comphensively listed and not necessarily in the order shown, will look at the following topics:

  1. A view on the China Data Center Market – Part 1 of 2
  2. A view on the China Data Center Market – Part 2 of 2
  3. Some special China Data Centers
  4. China Data Center Market – China Data Center players Part 1 of 2
  5. China Data Center Market – China Data Center players Part 2 of 2
  6. China Data Center Construction Eco-system
  7. China Data Center Market – Foreign Data Center players Part 1 of 2
  8. China Data Center Market – Foreign Data Center players Part 2 of 2

 

Reference

  1. http://baike.baidu.com/link?url=ifzD9GZe0Nh1GrLeIH80uAAbdWnSO8k2I34VR77qYcCKX_opPRn55IDsLPVui2JxvAySaIofeunY3Hz4Aks9ta
  2. http://www.idcquan.com/Special/idcmap/
  3. http://www.forbes.com/sites/lisachanson/2015/02/24/the-chinese-internet-gets-a-stronger-backbone/#37f1d0d70827
China Data Center Market – Local Data Center Players – Part 1 of 2

China Data Centers: Some Kind of Special

Published 11 May 2016

This is the third in a series of posts by me and a colleague on the China Data Center industry. You can find the earlier post to this series on my linkedin under my posts or via https://newwitblog.wordpress.com/

There are few articles that writes about China data center facilities which are energy efficient or significant in a certain way. We hear of this and that latest and largest and greenest in Europe or US but seldom about those in the Asia Pacific. Given that this is part of our series on China Data Centers, we put together a piece about some special China data centers.

While many of those posts are either the latest, the largest thus far, the most energy efficient, but the criteria is seldom clear. Here is our attempt to shortlist and highlight some of what we think are significant.

First off, the focus is China Data Centers, so the facility has to be located within China mainland.

Secondly, it should be of sizable scale, above 2,000 racks or 10,000 sq meters. However, size alone is not considered if energy efficiency measure is not a major consideration by the facility owner when planning, designing or implementing the data center facility.

Most importantly, by special kind of data centers, we look at those data centers that have at least one of the following attributes:

  • Internal energy efficiency measures beyond hot/cold aisle placement of racks and hot/cold aisle containment, e.g. free air cooling
  • Taking advantage of renewable energy
  • Any design or build strategy that makes it more efficient
  • A new business model (it has to be significant and best if its unique to China like the way Alibaba breaks how we shop)

Amongst the selected data center projects that we highlighted here, a couple of common theme emerges

  • The energy efficiency flows to direct energy cost savings through renewable energy power sources in certain parts of China which is a central government/provincial government directed major energy projects. These are evident in the north-west and western regions of China.
  • Energy efficiency measures are taken on seriously by the big users (Baidu, Alibaba, Tencent), and not by third party data center service providers.

For the second point above, the author has seen data center lease contracts whereby the design and implementation is dictated by the big users and implemented by the third party data center service provider (e.g. Watone for Alibaba’s QianDaoHu data center) in new data center build or retrofits. This is a significant trend towards cost savings or squeezing more power to go towards the IT compute/storage/network.

Let us begin on looking at these special kind of data centers, or in fact mega data centers in most cases.

1. Inner Mongolia Hohhot Cloud Data Center Zone (内蒙古云计算基地)

inner-mongolia-cloud-data-center-plan

City/Location:

Hohhot, Inner Mongolia

District:

He Lin Ge Er Economic Zone, Shengle distict and 盛乐园区和鸿盛开发区 (the latter has no English name that the author can find. 鸿盛高新技术产业开发区 is closer to the airport, about 2.9km)

Size, location, owner:

Three government owned carriers (China Telecom, China Unicom, and China Mobile) took the lead in 2012 to build their cloud data center park in Hohhot city.  In taking advantage of cool climate to enjoy free air cooling, the problem of sandstorm is a challenge. Co-generation plant is a feature of this zone project. As part of ensuring speedy delivery of servers, Inspur, the state-owned server manufacturer, has built a server manufacturing plant in the zone. Another privately funded capital investment firm CBC also will build a cloud data center park within the zone. Investment amount announced to date is about 70 Billion RMB.

Background:

This is a central government sponsored project whereby the central government is pushing the three government owned carriers and government research institutions that uses cloud/data center to use Hohhot as one of their main data center hubs in China.

The central government is pushing more government entities to support this Inner Mongolia Cloud Data Center Zone, which seems to do so in support of economic and stability of Hothot and Mongolia itself. The take up by Baidu/Alibaba/Tencent is not significant in this zone, although we heard that take up of a suite or two by each of the aforementioned. The Inner Mongolian government has been said to take up 50% of the initial phase of the data center park built by China Telecom.

Having the three dominant telco carriers set up their network and data centers in this cloud data center zone ensures that network connectivity to the main hubs, in this case mainly Beijing, should not be an issue.

What’s so special, i.e. what are the energy efficiency measures?

Low electricity utility cost. There are large scale solar power supplies built by both government and private entities. At less than half of Beijing utility charges while fibre optics cables by these three telco carriers ensures that that network bandwidth and speed is ensured.

Free air cooling, both direct and indirect are used in the data center facilities by the data center facility owners.

The only issue is that take up by enterprises and the BAT (Baidu, Alibaba, and Tencent) isn’t that “hot”. China Telecom’s Cloud Data Center Park in this Hohhot Cloud Data Center Zone is planned to be a 42 buildings campus. Phase 1 is 4 data center buildings. There is no immediate plan to bring up subsequent phases since the park has been operational since 2013.

The Central Scientific Research Institute has created a Cloud Research Project which not only will have a cloud data center in Hohhot, but also research projects such as how cloud will enable or grow farming industry etc.

2. AliCloud QianDaoHu (Qiandao Lake) Data Center

134619660_14421271821921n

ali-qiandaohu-solar-pannels

City/Location:

ChunAn county, QianDaoHu town, close to HangZhou, Zhejiang, China (青溪新城位于淳安县城千岛湖镇东面)

District:

QianDao Lake district, 千岛湖风景区

Size, location, owner:

30,000 sqm building floor area, 11 storey building (quite rare for a data center building), meant to house 50,000 servers.

This AliCloud data center is built and operated by a third party data center builder and facility operator called Watone Cloud Data (http://www.farvin.com.cn/) for Alibaba.

Background:

Alibaba headquarter is in HangZhou, ZheJiang province. It has multiple data centers in and around Hangzhou and elsewhere in China. It makes use of several energy efficiency measures to design and hopefully operate with a PUE below 1.3 which is previously thought impossible for the latitude of HangZhou.

What’s so special, i.e. what are the energy efficiency measures?

The choice of QianDaoHu is for its cool lake water at depth of about 60 meters, whereby the water temperature is around 13-17 Degree Celsius whole year round. This lake water is used via indirect cooling through heat exchangers. The heat-absorbed water is returned to the lake through a 2.5 km river special dug and with greenery features along its banks which is a good environmental consideration.

Another measure is a 3,000 sqm roof space for solar panels to yield average 300kW of power. Because solar panel generates energy in DC, it works well for Alibaba because their AliRack is meant to take in 240VDC which means more efficiency because they eliminate the need to convert the DC to AC. While this is insufficient for the whole facility, it contributes to cost savings on the energy front.

Alibaba’s Advanced Data Center Module (ADCM) technology is used, which uses DC power input to the server rack. Hot aisle containment is used, and the hot aisle air is scavenged to provide warm air for the office area during the cold season. The racks are mainly AliRack, meant to house 30% more compute power than traditional 19 inch racks. AliRack is one of the outcome of China Open Data Center Alliance, which is the new name for the Project Scorpio that is similar in nature to the Open Compute Project.

By using only DC power on one input to the servers and leaving the other input directly using utility, it ensures minimal energy loss compared to traditional 2xUPS input.

http://www.businesswire.com/news/home/20150908005493/en/AliCloud-Launches-Energy-Efficient-Qiandao-Lake-Data-Center

http://baidu.ku6.com/watch/08914215392542114792.html?page=videoMultiNeed

  3. Tencent Tianjin New District Data Center 腾讯天津数据中心

 tencent-tianjin-night-26154431599

Description of the site:

Tencent, the owner of QQ and Wechat, has a Tianjin New District data center comprising of two data center buildings and two office buildings.

City/Location:

Tianjin City. Tianjin is a city directly under the Central Government.

District:

Tianjin Binhai New District 天津滨海新区

Size, location, owner:

A data center compound owned by Tencent in the Binhai new district economic zone. The compound has two data center buildings (Phase 1 for building #2 and Phase 2 for building #3 ) and two office buildings. 93,000 sqm building floor area. It is said to be able to house 200,000 servers.

Background:

This site is one of the main processing hubs (the other one is in ShenZhen) for Tencent for its QQ, Wechat, QQ/wechat games, videos and financial transaction processing, especially for the northern half of China.

What’s so special, i.e. what are the energy efficiency measures?

Free air cooling. First phase was direct free air cooling, however given the smog plaguing Tianjin, Tencent has switched to use indirect free air cooling for phase 2. Phase 1 is more traditional cooling through raised floor, while Phase 2 is entirely Tencent’s Data Center modules with DC power input, thus having higher power efficiency as the input power only goes through AC-DC conversion and not the traditional UPS for Phase 1 (AC-DC -> DC-AC).

The annual (i.e. 365 days running number) PUE is already 1.3 for both buildings and it is foreseen that Phase 2’s PUE will be even lower as the capacity gets used up (phase 2 is less than 2 years old while phase one was built in 2010). This is amazing when compared to many so called claim PUE figures.

http://www.csdn.net/article/2015-01-20/2823638

http://ndc.cnw.com.cn/ndc-newdatacenter/htm2014/20140921_313138.shtml

 

4. Tencent Shanghai QingPu data center

tencent-qingpu-1450330095107.png

20151224003731_42362.jpg

Description of the site:

Tencent’s QingPu data center complex is built by China Telecom’s Shanghai Telecom subsidiary. It is not clear whether China Telecom operates the data center facility or not.

City/Location:

Shanghai

District:

QingPu district, Shanghai

Size, location, owner:

A 4 x data center buildings plus 1 office building housing command center and IT support services complex. Each data center building is two storeys, each floor occupies about 6,000 sq meters. Each building is to house 900 racks, i.e. total complex is to house 3,600 racks. The racks are arranged in Tencent’s micro-module (微模块).

Background:

Beyond the Tencent North and South processing hubs (Tianjin and Shenzhen), Tencent has been planning and executing large data centers in ShanWei (汕尾), ChongQing (重庆), and Shanghai(上海). This QingPu data center is a sizable data center footprint in Tencent’s capacity expansion plan. And unlike its previous projects, which it have tried lease or self-built, it has adopted a collaborative development approach for QingPu with Shanghai Telecom (a subsidiary of China Telecom).

What’s so special, i.e. what are the energy efficiency measures?

The micro-module approach has the racks cooled by in-row cooling in a cold-aisle containment configuration. The IT racks are power by 1xutility AC and 1xDC UPS supply, which meant electricity energy loss is minimal.

On the roof of each of the data center building is a 3,000 sqm space which will have solar panels that will generate about 300kW of electricity that supplement the utility supply from the 35kV substation.

Furthermore, a 6MVA tri-generation plant is being constructed that will assist in providing lower cost electricity and chilled water during the day.

The target PUE by Tencent for this site (it has not operate for one year yet which is the requirement for annual PUE measurement) is 1.4 which is quite a challenging target, however should be achievable given the various energy efficiency features.

http://news.idcquan.com/news/81946.shtml

http://www.testlab.com.cn/Index/article/id/1105.html

 

5. Ningxia ZhongWei City

zhongwei-windfarm-20131226013311513

zhongwei-amazon-U12587P308T37D52558F956DT20150916165256

Description of the site:

ZhongWei is blessed with lots of sunshine throughout the year and 5 x solar power plants (at least one of it is privately built and run) supplies power to the grid in addition to some wind power plants.  ZhongWei city and Beijing promised direct fibre connectivity between both cities for data center projects that make use of ZhongWei.

City/Location:

ZhongWei City, NingXia Hui Autonomous Region (same status as a province)

District:

ZhongWei City

Size, location, owner:

Three different sizable projects are taking place in ZhongWei city.

The earliest data center project, announced in 2014, is a 3 x Amazon Web Services data centers (the picture with people in the foreground) which are located in a triangle fashion several kilometres apart in three locations within ZhongWei city. However, it is foreseen that it will become operational by 3Q 2016.

Another project is a China Mobile data center complex that was just announced in early 2016.

Last but not least is a Cybernaut invested data center complex, it was mentioned by news media that QiHu360 and Alibaba will lease the Cybernaut facilities. Cybernaut is said to have managed government capital.

Background:

For power, and connectivity, Beijing and ZhongWei city governments are supporting the Western Cloud district concept 西部云基地.

The new projects as announced by Cybernaut and China Mobile seems to indicate that ZhongWei has attracted sizable data center investments.

What’s so special, i.e. what are the energy efficiency measures?

While none of the data center have been fully operational, although the AWS data centers are the first to be constructed and its mentioned to reach 19,200 racks when all the AWS facilities fully occupied, nevertheless the data centers in Zhongwei will enjoy the benefit of cheaper power from renewal energy sources (Solar and wind power), and free air cooling opportunity given the cooler climate when it is not summer.

http://www.10086.cn/aboutus/news/pannounce/nx/201603/t20160330_60977.htm

http://tech.xinmin.cn/2015/09/12/28567371.html

 

6. ZhangBei, Hebei Province

zhangbei-s_25474e44d7604951a782f4454cde021d

Description of the site:

Compared to ZhongWei, this ZhangBei town is fairly new in attracting data center projects. It got noticed because Alibaba has announced to build sizable data center facilities here.

City/Location:

North of ZhangJiaKo City, Hebei Province

District:

ZhangBei county, North of ZhangJiaKo City

Size, location, owner

Alibaba is building at least two data center buildings here in Zhangbei county. The construction and operations of the data center facilities is by Shanghai Athub, a state-owned enterprise that specializes in building and operating data centers.

Background:

Compared to ZhongWei, which announced the AWS project in 2014 but will only become operational by 3Q 2016, the speed of construction and fitting out by Alibaba is fast. Alibaba announced in mid 2015 it will locate a new data center in Zhangbei and the latest news is that the first data center will be operational by end of 2Q 2016.

What’s so special, i.e. what are the energy efficiency measures?

zhangbei-ali-s_5068578e83d143ae96cd6d20c917b287

The data center building is mentioned to be covered by solar panels where it is feasible. It will draw power from utility grid that has one of the lowest cost due to ZhongWei many wind power plants and solar power plants.

We are fairly sure that the Alibaba data center here will feature AliRack, with 1x utility AC supply and 1x DC UPS power supply to the IT racks, using micro-module cold aisle containment.

Furthermore, indirect free air cooling is likely to be used as well to cool the IT racks.

http://tech.xinmin.cn/2015/10/18/28769500.html

http://www.zhangbei.cn/xinwen/zhangbei/xinwen_19059.html

 

7. GuiZhou Big Data Hub Plan

0361b25ae6faa081e3433db269dee2a1

Description of the site:

GuiYang City, Guizhou Province

City/Location:

GuiYang City, GuiZhou Province

District:

Gui’an, GuiYang City

Size, location, owner

Three China carriers and some big data players have announced plans to build big data processing centers (which sits on data centers) in GuiZhou.

Background:

GuiZhou province is announced by China central government to be a big data hub for the western provinces. It received central government support in pushing for state owned companies to place one of their big data processing centers in GuiZhou. Incidentally, GuiYang city in GuiZhou enjoys pretty good climate whereby temperature are moderate in the mid 10s to low 20s in most time of the year which gives new data centers ability to use free air cooling techniques.

While GuiZhou has abundance of power generation capacity, the government still allows and support on-site power co-generation, which is a first. Another first is that Guizhou has a online power trading market that allows heavy power user to purchase power at lower cost, which triggers power generation companies to be more efficient and cost competitive.

 

07.jpg

One of the signature project is the Foxconn tunnel data center as shown in two pictures in this section.

What’s so special, i.e. what are the energy efficiency measures?

GuiYang city in GuiZhou enjoys pretty good climate whereby temperature are moderate in the mid 10s to low 20s in most time of the year which gives new data centers ability to use free air cooling techniques.

Furthermore, the air quality is good such that direct free air cooling can be used which is more efficient and less complex which leads to cost savings in implementing free air cooling.

The Foxconn data center uses containerized data center modules and fans to direct outside air from one end of the tunnel and extract the exhaust air from the other end.

http://www.ce.cn/cysc/tech/gd2012/201605/11/t20160511_11453129.shtml

http://www.datacenterdynamics.com/news/chinas-new-big-data-hub/85687.fullarticle

http://www.datacenterdynamics.com/design-build/foxconn-wants-to-build-your-data-centers/93813.fullarticle

 

Worth Mentioning

Wanda ChengDu ShuangLiu Data Center

This is significant more in the sense that a property company sees big data as beneficial to transform its physical retail business into online business, and not purely a property firm that enters the data center co-location service provider business. Wanda is the largest property company in China. It owns hundred of Wanda malls, Wanda housing projects throughout China. Wanda latest concept is to marry physical shopping with online shopping and to make use of big data analysis to create more value for its retail business through both Wanda itself and with partners. The Wanda ChengDu Shangliu Data Center will house Wanda’s own data center as well as serve as colocation service (total about 1,500 racks) for its partners that includes the 10s of thousands of shops within its mall and also online retailers. It is a gutsy project for a property company to take. This project was completed in end of 2015 and has became operational. http://news.winshang.com/news-534109.html

 

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

The China Data Center market series, not necessarily in the order shown, will look at the following topics:

  1. A view on the China Data Center Market – Part 1 of 2
  2. A view on the China Data Center Market – Part 2 of 2
  3. A look at China Data Centers: Some Kind of Special
  4. Technical Advancement in China Data Center Market
  5. China Data Center Market – Foreign Data Center Players
  6. China Data Center Market – China Data Center players
  7. Beijing Data Center market
  8. Shanghai Data Center market
  9. GuangZhou and ShenZhen Data Center market
  10. ChongQing+ChengDu Data Center market
  11. and other China cities that is considered promising growth markets

 

Reference (some of these links are in Chinese):

  1. http://www.datacenterdynamics.com/colo-cloud-/inner-mongolia-an-emerging-region-for-cloud/66676.fullarticle
  2. http://www.wokeji.com/wlw/zxzz/201511/t20151127_1965780.shtml
  3. http://www.chinadcc.org/
  4. http://www.idcun.com/
  5. http://www.businesswire.com/news/home/20150908005493/en/AliCloud-Launches-Energy-Efficient-Qiandao-Lake-Data-Center

 

China Data Centers: Some Kind of Special