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Is Cloud Computing a Boondoggle for China?

Beijing wants to lead the world in cloud computing, but does it make sense in a country without widespread broadband?
November 18, 2010

In October, Beijing announced that it would spend 50 billion yuan ($7.5 billion) to become “the largest cloud computing center in China and even the world,” reports Caixin online. U.S. vendors like Microsoft are lining up to answer that call, because at present the only way China can accomplish such an ambitious goal is with mountains of equipment sold by western companies.

Many in China are not sold on the idea that cloud computing is an appropriate investment for the Chinese government. For one thing, the country hardly has the telecommunications infrastructure to realize the cost savings associated with cloud computing. In a November 9 speech to the U.S.-China Internet Industry Forum in Beijing, Dr. He Baohong cited a 2009 report by content delivery firm Akamai, which showed that the average data transfer rate in China is only 857 kbps, an order of magnitude slower than average rates in developed countries.

Cloud computing depends on the idea that buying computing power on demand leads to a cost savings - but the economics only make sense when connecting to the cloud is quick and easy.

It’s a chicken and egg problem with no easy solution - cloud computing doesn’t make sense in China until its telecommunications infrastructure improves, and broadband service won’t improve until there is pressure (from cloud services, among others) to expand bandwidth.

According to,

Internet Data Centers (IDC) are the basic platforms for cloud computing. But China’s IDCs are mostly small-scale, energy-thirsty facilities that provide poor service. China’s IDC market amounted to 6.39 billion yuan in 2009, just 5 percent of the Asian market. More than 90 percent of China’s IDCs occupy less than 400 square meters.

The U.S. broke this logjam - and paved the way for the cheap cloud services that we now take for granted - through large-scale Federal action, namely the Telecommunications Act of 1996, which allowed for more competition between the carriers of various services. The subsequent Internet bubble meant plenty of dark fiber for companies like Google to light up once demand was sufficient.

Critics point out that, for a country with neither adequate data centers or internet connectivity, the cost of connectivity dwarfs the cost of building out the data centers. Caixin reports:

But some also question the cost benefits of cloud computing. “Why are China Mobile and China Telecom so enthusiastic? On the costs of cloud computing, communications costs are actually the highest, but coincidentally they’ve been removed from the costs,” said Xi Zili, director of the Shanghai Supercomputer Center.

Whatever the wisdom of China’s push for moving virtualizing IT infrastructure in the data center, the government appears to be committed, and recently declared Beijing, Shanghai, Shenzhen, Hangzhou and Wuxi to be innovation sites for cloud computing.

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