A few weeks ago, the Twitters were awash with stories about Amazon Web Services, the biggest public cloud vendor bar none, pulling out of the Chinese market. The rumors, which were based on a poorly worded, and even more poorly translated, Shenzhen stock market announcement, suggested that AWS had sold its Chinese operations to Beijing Sinnet for about US$300m. Sinnet and Amazon have been partners since September, 2016, when Sinnet took over AWS' Beijing data center.

It was an awesome rumor but, as is often the case with these things, the truth was slightly more complex than we all thought. AWS quickly made an announcement about the news, stating that:

"AWS did not sell its business in China and remains fully committed to ensuring Chinese customers continue to receive AWS’s industry leading cloud services. Chinese law forbids non-Chinese companies from owning or operating certain technology for the provision of cloud services. As a result, in order to comply with Chinese law, AWS sold certain physical infrastructure assets to Sinnet, its longtime Chinese partner and AWS seller-of-record for its AWS China (Beijing) Region. AWS continues to own the intellectual property for AWS Services worldwide. ‎We’re excited about the significant business we have in China and its growth potential over the next number of years."

The way things are done in China

It might seem weird for these big hulking technology vendors like Amazon and Microsoft to cower in the face of government regulations, but Chinese law is a stern beast and if you want to do business in the absolutely massive market that is Chine, you need to play by their rules. Other US vendors have no option but to operate in a similar way and do their cloud business through Chinese companies. About the time that the AWS news first hit the press, Microsoft announced a ramping up of its Chinese cloud footprint with CEO Satya Nadella promising that Microsoft will triple the capacity of its Azure business in the next six months.

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The back story to that is that Microsoft’s Chinese cloud business is in fact operated by 21Vianet and is an impressive business. Since its launch three years ago, Azure has been growing rapidly in China. Microsoft states that there are over 1,000 cloud partners and 80,000 enterprise customers in China, including Xiaomi, Haier, Lenovo, Mobike, and Huawei. But despite these big name customers and their impressive growth, Azure is still a small player in China, coming in at around fifth position with 7% market share.

The steep price for doing business in China. Does it allow for different winners?

I have zero doubt that Chinese regulations are often the cause for much frustration within the boardrooms of Amazon, Microsoft, and Google. Let's be honest here, this requirement for Chinese clouds to be owned by Chinese entities is nothing but a trade barrier. Essentially the Chinese government is skimming some of the cream off the top of the US tech vendors, and enjoying it for themselves.

But politics aside, this lack of a level playing field means there are some players in China who might just have a way of competing with the globally dominant triumvirate of Amazon, Microsoft, and Google. Vendors and commentators from the west have a frustrating habit of only seeing what goes on with Western vendors. We all accept that the “big three” will win the public cloud race, while secondary players like Catalyst Cloud, OVH and ProfitBricks, will gain some traction in regional markets. But this isn’t a case of big US vendors for mass markets and smaller vendors for smaller regional markets. China is a massive opportunity and there is every chance that it will be Chinese companies that win in their home markets.

And if thy can win at home, what does it mean for these Chinese vendors and their more global ambitions?

Chinese ambitions

Let me be frank. Chinese companies aren’t going to roll over and let these Western vendors have all the fun -- companies like Alibaba, Tencent, and Huawei have big cloud ambitions. At the recent OpenStack summit, Tencent was announced as a gold sponsor of the foundation that shepherds the open source cloud operating system. Shenzhen-based Tencent is one of the largest tech companies in Asia and is one of the top five Internet companies worldwide by market capitalization. Tencent uses various cloud platforms to host its services such as QQ, WeChat, and Game.

Alibaba also has some lofty cloud ambitions. Indeed, research firm Gartner just found that Alibaba was the top player in terms of worldwide cloud revenue growth. Alibaba’s cloud sales grew 126.5% to $675 million last year from $298 million in 2015, eclipsing Google, which doubled cloud revenue worldwide year-over-year to $500 million from $250 million; Microsoft Azure with its 61.1% growth to nearly $1.6 billion from $980 million; and Amazon Web Services, the granddaddy of them all which saw revenue growth of 45.9% to nearly $9.8 billion from about $6.7 billion.

Of course AWS has a far bigger base to grow from, and hence a tougher job gaining high percentage marks, but the comparison between Alibaba and Google is particularly telling.

Last but not least we have Huawei, the Shenzhen-headquartered company that was started back in 1987 with around $5,000 in capital. Huawei, an employee-owned company, is now valued at over $7 billion and has 170,000 employees. While Huawei is perhaps best known as a handset maker, or perhaps as a company supplying telco's with their hardware, it also has a small, but growing enterprise business. In a recent speech, Guo Ping, Huawei’s rotating CEO promised that the company will build a global cloud network based on its own public clouds, as well as clouds that it has built together with partners.

A fascinating journey to watch

The next few years are going to be interesting to watch as China gains momentum, both domestically and abroad. Clearly the US vendors are going to try hard to win in these markets, but keep an eye on Tencent, Alibaba, and Huawei. There could be some interesting times coming.