Chinese cloud giants eye South-East Asia

CHINA’S TECHNOLOGY giants are having a torrid time. At home, a regulatory crackdown is intensifying. In the latest move, on August 17th the authorities released draft antitrust rules that would hurt the business models of titans like Alibaba and Tencent. In the West, meanwhile, governments want to make it harder for Chinese companies to do business in their countries and, in America’s case, to list shares. Some global asset managers are calling Chinese tech stocks “uninvestable”.

The firms are thus casting around for friendlier climes. Foreign markets account for a relatively small share of the Chinese groups’ sales. Tencent made around $5bn in revenues outside mainland China last year, less than 8% of the total. So little of Alibaba’s income is derived from abroad that the company doesn’t bother publishing a geographical breakdown. If it were to start, however, no place would feature more prominently than South-East Asia.

The region is home to nearly 700m people, fast-digitising economies and, crucially, no hardened geopolitical persuasion. Having taken an interest in South-East Asian online darlings such as Lazada (an e-commerce venture majority-owned by Alibaba) or Sea Group (in which Tencent holds a 23% stake), China’s giants are expanding more directly in the region. Last year Alibaba bought half of a 50-storey skyscraper in Singapore, the regional commercial hub. Tencent and ByteDance, the unlisted owner of TikTok, a hit short-video app, have also opened beachhead offices there and set out on local hiring sprees.

Cloud computing presents a particular opportunity. Although the cloud market’s total size in South-East Asia is still relatively small, at less than $2bn a year, it grew by more than 50% in 2020, and shows no signs of slowing. And the Chinese firms are winning an ever greater share of this ever larger pie, mostly from Amazon Web Services (AWS), the American e-commerce empire’s cloud division.

According to Gartner, a research firm, in 2020 Tencent, Alibaba and Huawei, a privately held telecoms colossus, had 22% of the cloud market in South-East Asia and the smaller Asia-Pacific economies, up from 18% in 2019. This year Tencent opened its first data centre in Indonesia and its second in Thailand. In June Alibaba said it would build its first in the Philippines.

Unlike AWS and its American cloud rivals, Google Cloud and Microsoft’s Azure, Chinese firms are comfortable with the principle of data localisation. Many South-East Asian governments mandate that data about their citizens be processed and stored in their territory. Whereas Microsoft and AWS publish reports on the data requests made to them by governments and law-enforcement agencies, Chinese firms do not. This makes the Chinese services attractive to authorities unwilling to compromise on localised data. It also complicates embryonic efforts by America to negotiate a digital trade pact with Asian countries, which would almost certainly try to limit data localisation.

Even before it contributes a big slug of revenues, business activity in South-East Asia is a way to learn what works outside China, notes Tan Bin Ru, the regional boss of OneConnect Financial Technology, a subsidiary of Ping An, a huge Chinese insurer. The environment is both familiar (with millions of Chinese-speakers, who often dominate commerce) and diverse (with different legal jurisdictions and a wide range of income levels). Asian companies have used the region as a staging post to global conquest in the past, notably Toyota, which began its international expansion in Thailand in 1957. China’s giants would love to follow in its tyre tracks. ■

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An early version of this article was published online on August 18th 2021

This article appeared in the Business section of the print edition under the headline “SEA change”