Though often viewed as being at the forefront of the technology revolution, China has actually lagged the rest of the world when it comes to adopting enterprise software. According to technology market intelligence firm IDC, the country’s US$13bn worth of software expenditure last year represents just 6.2% of what the United States spent. And within the IT sector itself, software only constitutes 5% of China’s spending compared to 25% in the US.
But Asia’s biggest economy is starting to pick up the pace and cloud computing, in particular, is emerging as an attractive resource. Although this segment of China’s IT market is still in its infancy, cloud computing is forecast to triple in size by 2022 after already enjoying a phenomenal 70% CAGR in the past three years.
One catalyst expected to accelerate that momentum is the imminent rollout of 5G across the country. It will enable an array of new services, creating an enormous amount of data that only the cloud can manage. This change combined with China’s mobile-centric population and industrial digital transformation will present a golden opportunity for home-grown tech players.
Expanding the industrial internet
So far China’s internet infrastructure has been largely driven by consumers and their needs, but the advent of 5G may spur a more significant shift to industrial use. The super-fast network will increase the efficiency of machine-to-machine communications and make things like autonomous driving and remote surgery possible. Consequently, the amplified data requirements will prompt huge investments in corporate IT systems and boost the revenues of suppliers.
Also helping guide this process along is the central government in Beijing. China’s cloud market uniquely benefits from state support and the sector was even featured in the Five-Year Plan for economic expansion. On top of that, Beijing’s regulatory restrictions on foreign providers, such as Amazon Web Services and Microsoft Azure, leaves plenty of room for domestic companies to flourish.
As a result, China’s nascent cloud segment is on track for exponential growth with revenue set to surge from about US$7bn in 2018 to more than US$26bn in 2021.
For more insights, follow us on LinkedIn and click to subscribe to CLSA’s monthly newsletter.