AI boom fails to propel China’s cloud market growth

An AI sign is seen at the World Artificial Intelligence Conference in Shanghai on July 6, 2023.

Aly Song | Reuters

BEIJING — Excitement over artificial intelligence isn’t yet fueling a boom in cloud services spending in mainland China.

“The Chinese cloud services market remains conservative, relying heavily on government and state-owned enterprises to drive growth,” tech market analysis firm Canalys said in a report Wednesday.

Training AI models on the cloud, following a surge of interest in the potential of ChatGPT-like services, has been expected to drive the industry’s growth.

Alibaba‘s cloud business, with the country’s largest market share at 39%, reported just 2% year-on-year revenue growth in the quarter ended Sept. 30. The tech giant in November also scrapped plans to publicly list its cloud operations.

Huawei, which isn’t publicly traded and is the second largest cloud player, didn’t separately state its cloud revenue for the third quarter, nor did Hong Kong-listed Tencent.

The three largest cloud players in China held the same market share in the third quarter as they did in the prior one, while the segment’s overall growth slowed to 10% in 2022 and is expected to be at 12% in 2023 — sharply lower than the 45% surge in 2021, the Canalys report showed.

Domestic spending on cloud services grew by 18% year-on-year in the third quarter to $9.2 billion, according to the report.

However, it slowed drastically to 5.7% from 13% in the second quarter, according to CNBC analysis of Canalys data.

The mainland Chinese cloud market accounted for 12% of the global cloud spend in the third quarter, Canalys said. Third-quarter global cloud spending rose 1.5% from the previous quarter, CNBC analysis found.

Read more about China from CNBC Pro

The research firm pointed out the industry has been investing “heavily” in AI and looking to monetize AI offerings via the development of “partner ecosystems.” That includes a network of developers, software companies and experts, the report said.

This, however, is yet to translate into meaningful growth for the cloud segment.

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

Alibaba, Huawei and Tencent have each released AI models and products this year, as have Baidu and other companies in China.

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