International platforms such as Google, Facebook and Twitter are already banned in China.
But there are worries about a new cyber security law being formulated in Beijing that would require data collected in China to remain in the country.
The move has resulted in protests from at least 40 business groups in the United States, Europe and Asia including the US Chamber of Commerce and BusinessEurope. They recently sent a joint letter to the Chinese premier Li Keqiang saying that the planned restrictions would adversely affect foreign business in China.
The need to store data inside China’s borders “would impede economic growth, and create barriers to entry for both foreign and Chinese companies,” they said in the letter.
The groups also object to China’s plans for security reviews of technology products and its demands that companies share user data and assist law enforcement. And they are worried about proposed regulations for insurance companies’ use of IT systems in China.
The letter comes ahead of a G20 summit of world leaders that China is hosting next month. It urges Beijing to match its technology rules with the G20 goals of promoting an “innovative, invigorated, interconnected, and inclusive world economy”.
Chinese authorities have said the new rules are necessary to protect against cyber threats from abroad.
Despite regulatory restrictions, Chinese vendors may still attract foreign customers with limited technology budgets and domestic clients who cannot afford the higher priced services offered elsewhere, or who do not have easy access to foreign companies.
As it is, although it is relatively small at the moment, the Chinese market will soon become too big for foreign companies to ignore. This is why Amazon recently tied up with a Chinese company to provide could data management services in China.
The cloud computing market is still relatively nascent in China. According to Bain & Company, China’s cloud computing market was worth US$1.5 billion in 2013. However, that figure is expected to go up to $20bn by 2020, a compound annual growth rate of approximately 40 per cent.
China’s state-owned telecoms companies plan to invest about $180bn from 2015 to 2017 in fixed-line and wireless connectivity, says the International Trade Association in its 2016 Top Markets report on the cloud industry. The government views cloud computing as a strategic priority and included it in the nation’s 12th Five-Year Plan, it adds.
Chinese cloud vendors are also venturing overseas. Tencent, a Chinese internet company, announced last year that it will invest $1.5bn over the next five years in its cloud computing business, including the construction and operation of data centres in China and Hong Kong.
The Alibaba Group announced a $1bn investment into Aliyun, its cloud computing unit, which has data centres in China and Hong Kong.
“The simple fact is that the Chinese government has been using its power to tilt the playing field inside China in favour of domestic players in the digital space,” says Lee Branstetter, an associate professor of economics at the Heinz School of Policy and Management of the Carnegie Mellon University.
But he does not think Chinese cloud vendors will pose a major challenge to the likes of Google, Microsoft and Amazon in the data management business outside the country. “China’s efforts to keep out foreign digital players are actually a real global outlier – it is certainly the most digitally protectionist major economy,” he says. “For this reason, I expect Chinese digital players to continue to be dominant at home, but I do not expect them to be very successful abroad.”
business@thenational.ae
Follow The National's Business section on Twitter
