Entering the Chinese market? Here’s how to do it cloud-first

To extend your business inside China – and actually compete – you’ll need to set up shop behind the Great Firewall. Here’s how to choose a Chinese cloud provider and navigate the regulatory and privacy complexities

Entering the Chinese market? Here’s how to do it cloud-first
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Establishing a digital presence in China can be intimidating for any Western business. You are forced to grapple with myriad new and rapidly changing regulatory and security concerns, various trade war tensions, and of course the Great Firewall. In setting up IT infrastructure from within mainland China, you’ll face considerations different from almost any other geography on earth.

Unsurprisingly, the Chinese cloud market is dominated by local players, with IDC figures showing Aliyun (also known as Alibaba Cloud) holding 42 percent of the public cloud marketplace in 2018, followed by Tencent Cloud at 12 percent, China Telecom with 9 percent, and Amazon Web Services (AWS) close behind with 6 percent. The total market for cloud infrastructure and software in the world’s second-largest economy reached $5.4 billion in the first half of 2019.

The advantages of running key workloads or applications on local infrastructure tend to center on performance and data residency considerations, whether you are looking to stand up a cloud instance to launch new products into the Chinese market, or to establish a business presence in the region.

Take Starbucks as an example. The Seattle-based coffee giant is planning to double its number of coffee shops to 6,000 by fiscal year 2022 in the region, regardless of trade war tensions. It already opened the massive Starbucks Reserve Roastery in Shanghai in 2017, which integrated in-store and online customer experience for the first time in the region, complete with an augmented reality app designed by Alibaba. Expansion like that doesn’t happen without having core infrastructure in place.

Performance, privacy, and security baselines

Performance is a key issue in China, due to the aforementioned Great Firewall, which slows down cross-border internet traffic. So if you want to go to market in China with an acceptably performant internet presence, you’re best advised to adopt a local cloud instance – either that or gird yourself for the capital- and time-intensive process of establishing a local data center.

Jia Woei Ling, general manager for global accounts, startups, and territory business development for AWS Greater China, explained it this way at the cloud giant’s re:Invent conference late last year: “China, as many of you may already know, has the Great Firewall in place. So the network in and out of China is not as smooth as what you normally get from other countries, but there are ways that we can overcome this and it is something that we continue to work on.”

Similarly, in its guide to entering the Chinese market, Alibaba cloud identifies that “website load speed is crucial anywhere in the world, but particularly vital in a mobile-centric market like China. The best option to minimize latency, improve SEO visibility, and provide high availability is to host in Mainland China.”

Then there are the data residency and privacy considerations.

The Chinese government has a number of strict cybersecurity laws which will require consideration and compliance for any organization looking to operate cloud services inside its borders. As Dan Swinhoe at CSO reported in October, a number of new measures have been introduced recently that enable Chinese “law enforcement and intelligence agencies to closely monitor and inspect everything that happens on networks within the country.”

In an interview in March 2019 with CSO, Priscilla Moriuchi, director of strategic threat development at Recorded Future, advises those entering China to engage in “as much segmentation as possible of domestic China operations from the rest of the company’s global network…just assume that whatever business and research you’re conducting domestically in China will make its way to the government at some point.”

Whether your organization is comfortable with that or not will be a key consideration before moving forward in the region.

China’s regulatory hurdles 

Assuming you’re willing to pay for in-country infrastructure and accept government snooping, your next challenge emerges: Any company wanting to operate a public facing website in China must register as an ICP (internet content provider) first.

“It doesn’t matter what is the content as long as it is external facing,” Woei Ling at AWS explained. “That requires you to provide who is the owner of the website, what is the domain name, IP address, what is the content intended for, who is the security contact in case there is any issue with the content, etc.”

Local partners generally will help guide customers through the process, which can take anything between a week to 20 days to complete depending on the province. AWS, for example, actually blocks Port 80 and Port 443 by default for customers to help avoid accidentally publishing a website without completing the ICP process.

Microsoft Azure similarly offers an extensive playbook online for companies wanting to move from global instances to those operated in China. This includes a regulatory checklist to ensure things like real name verification for online service users and ICP filings have been completed.

It’s also worth bearing in mind that pricing may be different in China. Getting your finance teams up to speed early on would be a good idea, especially as some vendors insist on annual pricing rather than the more common monthly invoices issued by cloud providers.

Rules around internet content regulations are rapidly tightening in the region, too, with new guidance due to come into force in March and new data protection rules in the pipeline for 2020. That makes it all the more important to have a trusted local partner to help guide on issues like this.

What are your options?

Infrastructure-as-a-service (IaaS) is considered a telecom-related service in China. Only local partners can provide this service, which means that neither AWS (which launched its first Chinese data center in Beijing in 2014) nor Microsoft Azure (which has data centers in Beijing and Shanghai) actually operate in China. AWS partners with Beijing Sinnet Technology and Ningxia Western Cloud Data Technology (NWDC) and Microsoft with 21Vianet to offer cloud services in the region.

Alibaba has also been steadily building out its Western presence over the past couple of years and launched a China Gateway service in 2019 to help customers apply for an ICP license, establish a VPN for reliable and secure data connections and establish a dedicated connection between different cloud environments, if required.

Then there is Google Cloud, which does not currently have plans to open a Chinese cloud region after years of feuding with the country following its short lived attempts to launch a search engine there – not to mention enduring criticism from human rights activists and its own employees.

Alibaba Cloud

The clear local market leader, Alibaba has already proved itself a trusted partner for Chinese firms expanding into European availability zones, and now with China Gateway, it’s looking to do the same for companies moving in the other direction.

“We have seen a rapid growth in the number of UK and European companies trying to expand into China in the past 18 months or so,” Selina Yuan, president of international business of Alibaba Cloud Intelligence said.

[ Read next: How Alibaba Cloud plans to disrupt AWS, Microsoft and Google in EMEA ]

The primary challenges these organizations face are “security, connectivity and demanding cross-border digital infrastructure setup issues,” she added, regardless of if you are dipping a toe in the market remotely or setting up a local office and operation out of China.

As part of China Gateway, Alibaba has local teams across Europe to help with the end-to-end process of getting up and running in China, including a technical support team in the region itself, plus fast-tracked ICP registration and support.

“The speed of connection is high, and the latency is low enough for businesses such as financial services to engage with Alibaba cloud for their real time cross-border activities,” an Alibaba spokesperson said.

Where Alibaba has the clear edge over its Western competitors is its breadth of availability zones – eight in mainland China and two in Europe – and its local expertise. “Alibaba Cloud supports Alibaba Group’s various business units and this gives Alibaba Cloud insights into how overseas businesses can fit into the Chinese ecosystem from both a technology and business perspective,” Yuan said.

For example, global CRM giant Salesforce turned to Alibaba exclusively to launch services in mainland China, Hong Kong, Taiwan and Macau back in July last year.

“Alibaba’s advanced, secure infrastructure and knowledge of these markets will empower our global customers with a solution that meets local business needs,” a Salesforce blog entry said. Other customers of Alibaba’s China Gateway include InterContinental Hotels Group (IHG) and Costa Cruises.

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