China’s Cloud Market Growth Fails to Propel AI Boom

China’s cloud market growth has experienced a significant slowdown over the past two years, despite the surge of interest in the potential of AI services. This is primarily due to the conservative nature of the Chinese cloud services market, which relies heavily on government and state-owned enterprises for growth.

The tech market analysis firm Canalys reported that growth in China’s cloud market has slowed to 10% in 2022 and is expected to reach 12% in 2023. This is a stark contrast to the 45% surge in growth witnessed in 2021.

Alibaba, the company with the largest market share in China at 39%, reported a mere 2% year-on-year revenue growth in the quarter ended September 30th. In November, the tech giant even scrapped plans to publicly list its cloud operations.

Huawei, the second-largest cloud player in China, did not separately disclose its cloud revenue for the third quarter, nor did Hong Kong-listed Tencent. Interestingly, the three largest cloud players in China maintained the same market share in the third quarter as they did in the previous one.

Domestic spending on cloud services in China grew by 18% year-on-year in the third quarter, reaching $9.2 billion. However, this growth rate slowed drastically from 13% in the second quarter to 5.7%.

The prime reason behind this slowdown is the lack of meaningful growth in the cloud segment despite significant investments in AI. The complexity of AI technology presents challenges in terms of adoption and deployment, even as it unlocks opportunities for a broader AI ecosystem.

Despite the release of AI models and products by companies such as Alibaba, Huawei, Tencent, and Baidu, the industry has yet to experience substantial growth in the cloud segment. This highlights the challenges faced by the industry in adopting and deploying AI technology effectively.