Cloud Services in China - Key Considerations for Foreign Businesses

There are some key differences in cloud technology that businesses should be aware of when determining their China IT strategy.

We sit down with Thomas Zhang, Dezan Shira & Associates’ IT Director, based in the tech-hub of Shenzhen, to understand what these differences are and what other cloud service considerations foreign businesses should be aware of when entering the Chinese market.

What are the benefits of using cloud services for your business? 

There are a few pivotal benefits to using cloud services. These include:

1. Businesses reduce the one-off investment on hardware / software and convert the CapEx (capital Expenditure) to OpEx (operational expenditure). This further reduces the risk of financial losses if the project fails. From an accounting standpoint, it will also be helpful for cash flow and on-time tax deduction. 
2. Businesses functioning on cloud have better flexibility to adapt to rapid changes in the business environment. If a company needs to increase or reduce computing resources quickly, then your IT platform will be able to swiftly adapt. For example, an e-commerce website’s volume at night (when people start to shop after work) is much higher than during the day. There will also be some occasions such as cyber holidays like Double 11 (Nov. 11^th), when access will need to be rapidly increased and Cloud will enable your business to quickly adjust to real-time needs in a cost-effective way.
3. Cloud service is usually more reliable and secure compared to an on-premise platform. Unlike a data center owned by the company itself, which is usually small and built with limited investment, the data center of a cloud service provider has significantly more investment, resulting in stronger infrastructure and a fulfilment of common industry standards – which most likely means better security measures are in place.

 What's different about the Cloud in China?

1. Payment terms— In China, cloud services are paid upfront with yearly subscriptions instead of the pay-as-you-go way businesses may be more familiar with when paying for SaaS. Cloud customers in China are required to deposit money into their cloud account before consuming the service.
2. Data location and isolation— All cloud data is required to be saved in data centers located in China. These data centers cannot be connected to others outside China, even to those of the same cloud service provider.

Are there any special requirements to obtain Cloud services in China?

There are no special limitations for either personnel or companies to subscribe/purchase cloud service in China.

However, in practice, there will be a type of “real name” verification mechanism, requiring valid contact info, like a Chinese mobile number, and the company’s business license would be necessary. If the company does not have a legal entity in China, a cloud service provider (CSP) or cloud reseller could provide assistance by purchasing the service and signing the agreement on behalf of the client.

What are some of the main issues foreign investors face when using cloud technology in China?

1. Payment from an overseas HQ to a cloud service provider in China

Cloud service vendors in China usually only accept payments made in RMB. This can be an inconvenience to companies who do not have a legal entity in China or if the local, legal entity has difficulty arranging the payment.

In these cases, the company can order from cloud service resellers instead of directly through cloud service vendors, as some resellers (like DSA) accepts a multitude of currencies from around the world.

2. Local contact information to finish cloud service account registration

In certain situations, a cloud service reseller could help by just providing local contact information, or the company could purchase cloud service directly from the reseller.

3. Compliance issues like ICP (for website), CSL and privacy requirements

When a company is going to run a website in China to serve customers/clients, some compliance requirements must be taken into consideration. An experienced consultant could provide suggestions after analyzing the company’s business nature and website.

4. Integration

There are of course cases when companies have special requirements in which certain data cannot be saved on the public cloud and requires a private data center/on-premise server. In this situation, a hybrid cloud infrastructure could be considered. This would ensure security requirements are being met while also providing the benefit of cloud service.

A VPN tunnel between the public cloud and a company’s private data center would be the common way to create a hybrid cloud infrastructure, or one dedicated, leased line - which is a more expensive way – to connect a company’s private data center to the public cloud.

What should foreign investors look for in service providers?

There are not too many vendors in the cloud market, but we still have a short list we provide companies.

In China’s cloud market, we usually divide the vendors into two categories: domestic cloud service provider and foreign cloud service provider.  The latter mainly refers to Microsoft (Azure) and Amazon (AWS), while the former has a slightly longer list which includes AliYun, Tencent, China Telecom, Kingsoft, UCloud, etc.

When selecting the provider, we recommend considering:

• Reputation and record of reliability— Does the provider have a good reputation and maintain a good record for both reliability and service?
• Service Level Agreement (SLA)— Businesses need to review the SLA that the provider has committed to and evaluate whether it meets their own business requirements. E.g. the business can only allow an IT system downtime of 99.9%, but the cloud service provider can only guarantee 90%; that is a significant gap of business downtime.
• Product / service scope— Does the provider just provide individual service of IaaS, PaaS, SaaS or a combination? The wider the service scope, the less vendors the company needs to employ, reducing the cost of vendor selection, vendor management, IT management and maybe even on the product/service itself.
• Compliance— There is an ever-growing list of compliance requests companies must account for. For example, local governments might lawfully request the location of the data. Using public cloud can make it tricky for companies to know and/or be able to check where the real location of data is (vs. storing at a private data center). In this case, the company must rely on the 3^rd party to ensure its own compliance. Therefore, it’s quite important to obtain cloud service from a provider that ensures its cloud product / service is fully compliant with different countries’ regulations and laws, in addition to also meeting the latest industry security standard.

What is your top pick for Cloud provider in China?

As previously mentioned, companies first must consider whether to select a domestic or foreign provider. Since most foreign companies have prior experience using cloud outside of China already (whether that is with Azure, AWS, Google, Oracle cloud, etc.), we believe selecting a foreign provider like Microsoft or Amazon would be the best option for foreign companies to have a familiar interface and operation of the cloud technology.

We know that AWS is a leader around the world, but we would say Microsoft is better positioned in the Chinese market when comparing the two. Simply put, Microsoft already has a well-developed software ecosystem that once integrated, fulfills many of a business’ needs. This ecosystem is composed of Office365 (for productivity), Dynamics 365 (providing ERP & CRM capabilities) and Azure (public cloud with laaS, PaaS, SaaS services).  Moreover, Azure has great performance on compliance side with 50+ compliance certifications specific to global regions and countries, plus 35+ compliance offerings specific to the needs of key industries.