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China’s Cloud Market Struggles to Boom Despite AI Surge

BEIJING —Despite the buzz surrounding artificial intelligence (AI), the anticipated surge in cloud services spending has yet to materialize in mainland China, according to a report by tech market analysis firm Canalys.

The Chinese cloud services market remains conservative, relying heavily on government and state-owned enterprises to drive growth stated the report released on Wednesday.

While the training of AI models on the cloud was expected to be a key driver for the industry’s growth, major players such as Alibaba, with a leading 39% market share, reported only a 2% year-on-year revenue growth in the quarter ending September 30. In a surprising move, Alibaba also abandoned plans to publicly list its cloud operations in November.

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Huawei, the second-largest cloud player (though not publicly traded), did not disclose its cloud revenue for the third quarter, and Tencent, listed in Hong Kong, similarly did not provide separate details.

The Canalys report revealed that the three largest cloud players in China maintained the same market share in the third quarter as in the previous one, while the overall segment’s growth slowed to 10% in 2022 and is projected to be only 12% in 2023, a significant drop from the 45% surge in 2021.

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According to the report, domestic spending on cloud services in the third quarter grew by 18% year-on-year, reaching $9.2 billion. However, this growth slowed sharply to 5.7%, down from 13% in the second quarter, as per CNBC analysis of Canalys data. The mainland Chinese cloud market accounted for 12% of the global cloud spending in the third quarter, Canalys noted, while global cloud spending increased by 1.5% from the previous quarter.

Canalys highlighted that the industry has been heavily investing in AI and seeking to monetize AI offerings through the development of partner ecosystems, involving a network of developers, software companies, and experts. However, this investment has not yet translated into meaningful growth for the cloud segment.

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“The innate complexity of AI technology presents challenges in terms of adoption and deployment,” Canalys stated, “yet simultaneously unlocks opportunities for a broader AI ecosystem.”

In efforts to harness these opportunities, Alibaba, Huawei, and Tencent, along with other Chinese companies such as Baidu, have released AI models and products throughout the year. Despite these initiatives, the anticipated AI boom has not propelled the expected growth in China’s cloud market.

Editorial Staff
Editorial Staff
Editorial Staff at AI Surge is a dedicated team of experts led by Paul Robins, boasting a combined experience of over 7 years in Computer Science, AI, emerging technologies, and online publishing. Our commitment is to bring you authoritative insights into the forefront of artificial intelligence.
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