Establishing a digital presence in China can be intimidating for any Western business. You are forced to grapple with myriad new and rapidly changing regulatory and security concerns, various trade war tensions, and of course the Great Firewall. In setting up IT infrastructure from within mainland China, you’ll face considerations different from almost any other geography on earth.
Unsurprisingly, the Chinese cloud market is dominated by local players, with IDC figures showing Aliyun (also known as Alibaba Cloud) holding 42 percent of the public cloud marketplace in 2018, followed by Tencent Cloud at 12 percent, China Telecom with 9 percent, and Amazon Web Services (AWS) close behind with 6 percent. The total market for cloud infrastructure and software in the world’s second-largest economy reached $5.4 billion in the first half of 2019.
The advantages of running key workloads or applications on local infrastructure tend to center on performance and data residency considerations, whether you are looking to stand up a cloud instance to launch new products into the Chinese market, or to establish a business presence in the region.
Take Starbucks as an example. The Seattle-based coffee giant is planning to double its number of coffee shops to 6,000 by fiscal year 2022 in the region, regardless of trade war tensions. It already opened the massive Starbucks Reserve Roastery in Shanghai in 2017, which integrated in-store and online customer experience for the first time in the region, complete with an augmented reality app designed by Alibaba. Expansion like that doesn’t happen without having core infrastructure in place.
Performance, privacy, and security baselines
Performance is a key issue in China, due to the aforementioned Great Firewall, which slows down cross-border internet traffic. So if you want to go to market in China with an acceptably performant internet presence, you’re best advised to adopt a local cloud instance – either that or gird yourself for the capital- and time-intensive process of establishing a local data center.
Jia Woei Ling, general manager for global accounts, startups, and territory business development for AWS Greater China, explained it this way at the cloud giant’s re:Invent conference late last year: “China, as many of you may already know, has the Great Firewall in place. So the network in and out of China is not as smooth as what you normally get from other countries, but there are ways that we can overcome this and it is something that we continue to work on.”
Similarly, in its guide to entering the Chinese market, Alibaba cloud identifies that “website load speed is crucial anywhere in the world, but particularly vital in a mobile-centric market like China. The best option to minimize latency, improve SEO visibility, and provide high availability is to host in Mainland China.”
Then there are the data residency and privacy considerations.
The Chinese government has a number of strict cybersecurity laws which will require consideration and compliance for any organization looking to operate cloud services inside its borders. As Dan Swinhoe at CSO reported in October, a number of new measures have been introduced recently that enable Chinese “law enforcement and intelligence agencies to closely monitor and inspect everything that happens on networks within the country.”
In an interview in March 2019 with CSO, Priscilla Moriuchi, director of strategic threat development at Recorded Future, advises those entering China to engage in “as much segmentation as possible of domestic China operations from the rest of the company’s global network…just assume that whatever business and research you’re conducting domestically in China will make its way to the government at some point.”
Whether your organization is comfortable with that or not will be a key consideration before moving forward in the region.
China’s regulatory hurdles
Assuming you’re willing to pay for in-country infrastructure and accept government snooping, your next challenge emerges: Any company wanting to operate a public facing website in China must register as an ICP (internet content provider) first.
“It doesn’t matter what is the content as long as it is external facing,” Woei Ling at AWS explained. “That requires you to provide who is the owner of the website, what is the domain name, IP address, what is the content intended for, who is the security contact in case there is any issue with the content, etc.”
Local partners generally will help guide customers through the process, which can take anything between a week to 20 days to complete depending on the province. AWS, for example, actually blocks Port 80 and Port 443 by default for customers to help avoid accidentally publishing a website without completing the ICP process.
Microsoft Azure similarly offers an extensive playbook online for companies wanting to move from global instances to those operated in China. This includes a regulatory checklist to ensure things like real name verification for online service users and ICP filings have been completed.
It’s also worth bearing in mind that pricing may be different in China. Getting your finance teams up to speed early on would be a good idea, especially as some vendors insist on annual pricing rather than the more common monthly invoices issued by cloud providers.
Rules around internet content regulations are rapidly tightening in the region, too, with new guidance due to come into force in March and new data protection rules in the pipeline for 2020. That makes it all the more important to have a trusted local partner to help guide on issues like this.
What are your options?
Infrastructure-as-a-service (IaaS) is considered a telecom-related service in China. Only local partners can provide this service, which means that neither AWS (which launched its first Chinese data center in Beijing in 2014) nor Microsoft Azure (which has data centers in Beijing and Shanghai) actually operate in China. AWS partners with Beijing Sinnet Technology and Ningxia Western Cloud Data Technology (NWDC) and Microsoft with 21Vianet to offer cloud services in the region.
Alibaba has also been steadily building out its Western presence over the past couple of years and launched a China Gateway service in 2019 to help customers apply for an ICP license, establish a VPN for reliable and secure data connections and establish a dedicated connection between different cloud environments, if required.
Then there is Google Cloud, which does not currently have plans to open a Chinese cloud region after years of feuding with the country following its short lived attempts to launch a search engine there – not to mention enduring criticism from human rights activists and its own employees.
The clear local market leader, Alibaba has already proved itself a trusted partner for Chinese firms expanding into European availability zones, and now with China Gateway, it’s looking to do the same for companies moving in the other direction.
“We have seen a rapid growth in the number of UK and European companies trying to expand into China in the past 18 months or so,” Selina Yuan, president of international business of Alibaba Cloud Intelligence said.
The primary challenges these organizations face are “security, connectivity and demanding cross-border digital infrastructure setup issues,” she added, regardless of if you are dipping a toe in the market remotely or setting up a local office and operation out of China.
As part of China Gateway, Alibaba has local teams across Europe to help with the end-to-end process of getting up and running in China, including a technical support team in the region itself, plus fast-tracked ICP registration and support.
“The speed of connection is high, and the latency is low enough for businesses such as financial services to engage with Alibaba cloud for their real time cross-border activities,” an Alibaba spokesperson said.
Where Alibaba has the clear edge over its Western competitors is its breadth of availability zones – eight in mainland China and two in Europe – and its local expertise. “Alibaba Cloud supports Alibaba Group’s various business units and this gives Alibaba Cloud insights into how overseas businesses can fit into the Chinese ecosystem from both a technology and business perspective,” Yuan said.
For example, global CRM giant Salesforce turned to Alibaba exclusively to launch services in mainland China, Hong Kong, Taiwan and Macau back in July last year.
“Alibaba’s advanced, secure infrastructure and knowledge of these markets will empower our global customers with a solution that meets local business needs,” a Salesforce blog entry said. Other customers of Alibaba’s China Gateway include InterContinental Hotels Group (IHG) and Costa Cruises.
The Western market leader AWS runs two availability zones in the China region, one in Beijing run by Chinese company Sinnet, and one in Ningxia, which is operated by NWCD.
Woei Ling at AWS said it has “designed these data centers in the exact same manner that you have known us for. We have done it very consistently, you can expect the same standard, same quality, same design in the data centers inside China.”
Additionally, the console experience has been designed to closely resemble other AWS regions, complete with the same APIs, SDKs, and command line interfaces (CLIs) used in other AWS Regions. Invoices and support however will come from the local partner in both English and Mandarin, granted.
“We have fully fledged professional services, training, solution architects, technical support, all in China,” Ling added.
AWS has also been keen to build out local expertise in China, with various training programs across the regions and a student program which Ling said has already trained 80,000 students.
Microsoft runs its Chinese Azure regions through 21Vianet, with a separate global account and different pricing. The Azure website offers a comprehensive list of the services available in China regions.
“Cloud is moving fast in China. Apart from a few highly regulated industries like banking, the rest of the industry sectors have no hesitation to adopt a cloud instance in China, but the implementation and various regulations mean we need to understand the business requirements of that customer,” Horace Chow, chief operating officer at Microsoft China said.
Chow cited the need for simplicity of use and portability of data and applications across global borders as common reasons customers turn to Microsoft for their Chinese cloud computing needs.
“We have been working very hard to do a lot of information exchange and education to our global account team and using them as a vehicle to tell customers if they come to China there are things they need to be aware of,” Chow said. “We have a local cloud technology team to help customers understand the security and data ownership challenges, and also a team under legal and finance to understand that part of the world.”
Local providers like Tencent and China Telecom have less well-rounded capabilities for Western companies, but do offer local cloud computing services.
China Telecom offers enterprise cloud services which either connect to AWS or Azure in China, or through shared and dedicated IaaS services designed and delivered by the vendor itself.
Tencent offers various solutions, including a simple website hosting service, and has had most of its success to date working with global gaming companies such as Clash Royale and Pitaya.
Making the leap to the Middle Kingdom
One company that has successfully expanded to China using a Western cloud provider is HERE Technologies, the location data specialist that was sold by Nokia in 2015 and is now owned by a consortium of technology and automotive companies.
Speaking at the AWS re:invent conference in Las Vegas last year, Jason Fuller, head of cloud operations and management at HERE, explained how the company has been successfully hosting services in China with AWS for three years. “It looks and it feels very similar to the AWS experience,” Fuller said. “The infrastructure that you build in China also looks and feels and performs very much like the infrastructure that you have globally.”
Yet Fuller admits that there is a steep learning curve involved when dealing with Chinese cloud partners, even when going through AWS. “Make sure that your global finance teams are prepared,” he advises. “When you think about China and you think about the expense of China, it won’t be the price of AWS that is costing you money,” he said. The time and effort required to navigate China’s unique requirements must be carefully balanced against the benefits when building a business case for operating digital services in the country.
Fortunately, now seems like the best possible time to make this decision, as the big cloud vendors catch on to the need for simple solutions and plenty of support to bring customers along on the journey.