China's Cloud Services Market Growth Unmoved by AI Expectations

Contrary to expectations, the emergence of sophisticated artificial intelligence (AI) technologies has not translated into a significant uptick in cloud services expenditures in China, despite the country's embrace of digital innovation.

The Current State of Cloud Spending

Research from Canalys, a tech market analysis firm, indicates that China's cloud market depends largely on governmental and state-backed enterprises for expansion. Enthusiasm surged with the prospect of AI applications, such as ChatGPT-like platforms, energizing cloud growth; however, such hopes have not materialized in the anticipated financial surge.

Alibaba Group Holding (NYSE:BABA), a giant in China's cloud sector with a commanding 39% share, reported only a slight 2% year-over-year rise in revenue for the quarter ending on September 30. The company additionally shelved ambitions to publicly list its cloud division in November.

Competitors such as Huawei and Tencent have withheld their cloud revenue figures for the same period. Despite this, market share standings for these companies remained consistent with previous quarters.

The broader picture for the cloud industry in China shows a significant slowdown, with 2022 growth plunging to 10% from the previous year’s 45%. Still, domestic expenditures on cloud services climbed by 18% year-over-year in the third quarter to $9.2 billion. But this growth tapered from 13% to 5.7% when compared quarter-over-quarter, as per CNBC's assessment of the Canalys insights. The report further highlights that China's contributions amounted to 12% of the global cloud market expenditure in the third quarter.

Global Stance and AI Scrutiny

Around the globe, AI is under closer examination. U.S. Commerce Secretary Gina Raimondo disclosed that three AI accelerators being developed by Nvidia Corp. (NASDAQ:NVDA) for the Chinese market were being reviewed by American authorities. Issues have also been raised regarding the potential misuse of AI technology by China, prompting concerns from security agencies like the FBI about AI aiding purported espionage activities.

AI, cloud, China