AWS China hopes to benefit from China's 'dual circulation' strategy

REPORT REPRINT

AWS China hopes to benefit from
China’s ‘dual circulation’ strategy
FEBRUARY 26 2021
By Agatha Poon
The company believes that it is well placed to mobilize the dual-circulation strategy promulgated by China.
Together with the likes of Sinnet, Ningxia Western Cloud Data Technology and local AWS Partner Program
partners, AWS China wants to help democratize digitization while bringing industrial transformation to the
next level.

THIS REPORT, LICENSED TO AMAZON WEB SERVICES, DEVELOPED AND AS PROVIDED BY 451
RESEARCH, LLC, WAS PUBLISHED AS PART OF OUR SYNDICATED MARKET INSIGHT SUBSCRIPTION
SERVICE. IT SHALL BE OWNED IN ITS ENTIRETY BY 451 RESEARCH, LLC. THIS REPORT IS SOLELY
INTENDED FOR USE BY THE RECIPIENT AND MAY NOT BE REPRODUCED OR RE-POSTED, IN WHOLE
OR IN PART, BY THE RECIPIENT WITHOUT EXPRESS PERMISSION FROM 451 RESEARCH.

©2021 451 Research, LLC | W W W. 4 5 1 R E S E A R C H . C O M

REPORT REPRINT

Introduction
China’s ‘dual circulation’ economic strategy, which is expected to be incorporated into the five-year
plan for 2021-2025, has garnered considerable interest at the national and international levels. As the
country sets out to restore its economic resilience in the post-COVID-19 era, the notion of creating a
symbiotic relationship between internal and external economic forces is catching on. This is especially
the case for Chinese tech firms, which have stepped up their global expansion plans under the Belt and
Road Initiative. By the same token, foreign tech firms that have set foot in China are in harmony with
the symbiotic vision of economic development for growth. AWS China believes that it is particularly
well placed to mobilize the dual-circulation strategy promulgated by Chinese President Xi Jinping
in May 2020. Together with the likes of Beijing Sinnet Technology (Sinnet, the operator and service
provider of the Beijing region), Ningxia Western Cloud Data Technology (NWCD, the operator and
service provider of the Ningxia region) and other local AWS Partner Program partners, AWS China
wants to help democratize digitization while bringing industrial transformation to the next level.

451 TAKE
AWS effectively leverages global resources to grow its portfolio of services and
capabilities in China. By investing in building industry-focused expertise and developing
localized knowledge and skills, it has proved its worth among transforming enterprises.
However, selling in China isn’t as easy as it would be in less regulated countries,
especially with the uniqueness of local culture and business practices. For AWS China to
reach critical mass, it will need to tighten up AWS Partner Programs with incentives to
scale its Chinese operations with local SIs and domain experts.

Context
With China being one of the strategic countries for scaling its global operations, AWS first established
its local presence in 2013. As demand for local support grew, in 2016 the company announced the
availability of the AWS China (Beijing) Region through a partnership with IDC operator Sinnet. A similar
arrangement was made with NWCD in 2017 to set up the AWS China (Ningxia) Region.

In compliance with Chinese regulations, Sinnet and NWCD, which have the required (IDC/VAS/ICP)
licenses, are responsible as the service providers and operators of the Beijing and Ningxia regions,
respectively. There are two availability zones in the Beijing region and three in the Ningxia region.
Unlike other AWS global regions, the AWS China regions use local management console and account
systems for billing and support charges, which stand on their own in terms of authentication and
access to AWS services in China. In 2019 the company added a new Asia-Pacific region in Hong Kong.
China is the only country to have three regions outside of the US, although customers will need to
access AWS services in mainland China and Hong Kong using the respective portals.

On the technology front, AWS is committed to driving technology innovation. There is discernible
interest in data-driven technologies as 5G becomes increasingly available. According to the official
data provided by the Ministry of Industry and Information Technology, China has built nearly 700,000
5G base stations and has more than 180 million 5G terminal connections. In 2019 AWS established
IoT (Internet of Things) labs in Shenzhen and Taipei (Taiwan). It also operates an R&D lab in Shanghai
to advance AI development and promote localized technologies. One example is a collaborative effort
with researchers in China and the US to develop the Drug Repurposing Knowledge Graph using data
analytics and machine learning tools. The DRKG is used to discover new drugs by identifying the
ingredients of existing drugs and their potential interactions with human genes, biological processes

REPORT REPRINT

and side effects. As part of its ongoing effort to combat COVID-19, AWS has also provided support to
research institutions around the globe by adding 65 life-science-related datasets to the Registry of
Open Data on AWS.

While the idea of using renewable energy has caught the attention of IDC providers, many of them are
taking a wait-and-see approach. With that said, AWS has joined a group of active players to promote
awareness of energy-saving technologies and renewable energy with the announcement of its first
renewable energy project in Shandong. If everything is on track, the project is expected to generate
128,000 MWh of clean energy annually.

To bridge the skills gap, AWS works closely with government agencies (including the Ministry of
Education), educational institutions and business organizations through a multitude of programs and
initiatives, including AWS Educate, AWS Academy, AWS Cloud Credits for Research and AWS Cloud
Innovation Academy, to empower educators to transform their practices and learning environments
while creating employment opportunities.

Product
Globally, AWS has more than 175 fully functional services to support diverse use cases and industry
verticals. While the goal is to provide customers with a consistent product portfolio, not all products are
available in the China region. The China team indicates that it has been working on closing the product
gap, and in 2020 AWS China launched more than 400 services and features in the China regions,
including sought-after products such as Amazon SageMaker Studio. Accordingly, Amazon SageMaker
Studio is only available in six AWS regions around the globe, two of which are in China. It has also
released Amazon Document DB with MongoDB compatibility to support customers running MongoDB
workloads. Its most recent offerings include Amazon FSx for Windows and Amazon FSx for Lustre.

The company finally unveiled AWS Marketplace China operated by NWCD in 2020, with more than 200
third-party software offerings coming online. The China team has also invested in building vertically
focused offerings. Spot Tagging Bot, which is touted as a locally developed offering that utilizes
machine learning technology to label unstructured data, such as photos, PDF files and videos, is gaining
traction in the banking, financial services and insurance industry for unstructured data management.
Additionally, EdTech companies and educational institutions are turning to open source technologies
like BigBlueButton, an open source video conference system with features such as multi-user
whiteboards and breakout rooms, to deploy their own online education platforms on AWS Cloud.

Overall, AWS services are generally available in both the Beijing and Ningxia regions, but some services
are only available in one of the two regions. For example, AWS IoT Analytics is limited to businesses in
the AWS China (Beijing) region. As a rule of thumb, AWS will prioritize/add new features based on initial
user feedback and then roll out an updated version of the product globally.

Aligning with China’s dual-circulation strategy
Against the backdrop of China’s dual-circulation economic strategy, AWS believes that it is well-
positioned to mobilize the ‘external’ circulation by accelerating the globalization of Chinese companies
while strengthening the ‘internal’ circulation by empowering overseas companies to solidify their
operations in China. Having a global network of AWS partners is instrumental to help onboard
customers and scale its operations. In-line with the Belt and Road Initiative, AWS China has already
worked with AWS Partners to bring Chinese companies to international market segments. Examples of
Chinese companies going global include CIMC, Globalegrow, Cheetah Mobile, Midea, OnePlus and Huya.

REPORT REPRINT

OnePlus, a high-end smartphone manufacturer operating in dozens of countries and regions around
the world, utilizes the AWS cloud infrastructure to deploy overseas company and community websites
and provide support to its overseas flash sale platform. Accordingly, it took only five days to complete
the deployment of a global system to support its overseas businesses, and all overseas shopping
sites were migrated to AWS. To meet the stringent requirements of the EU’s GDPR, OnePlus uses the
GDPR-ready AWS Cloud to process user data in a safe and compliant manner.

On the other hand, AWS is committed to providing global companies operating in China with the
resources and support needed to create an enriched user experience. Global companies such as
Coca-Cola, Toyota Connected, Canva and Softbank Robotics, which already have strong footholds in
China, continue to turn to technologies for operational efficiency and enhanced customer experience.
For Toyota Connected, the ability to inject, store, decode, convert and analyze the massive amount
of data generated by millions of vehicles in real time using a unified data lake is deemed valuable to
customers. For example, by providing an analysis of driving behavior, it can help drivers secure car
insurance discounts by demonstrating safe driving.

AWS partners
AWS has done a good job of growing its Partner Program. Under this program, which comprises
thousands of partners, the China team has forged strategic partnerships with well-known domestic
and foreign IT providers, such as KPMG, Capgemini, Deloitte, Digital China, Ultrapower Software and
Futong. There are 43 local AWS partners that have achieved the AWS Competency designation, a
program for partners that have demonstrated deep AWS technical expertise with a proven track
record. The company continues to delve deeper into vertically focused opportunities, and has
teamed up with some 100 global and local AWS Partners to unveil digital offerings that help business
organizations transform themselves. There are vertical offerings targeting nine vertical segments:
finance, manufacturing, automotive, retail and e-commerce, medical and life sciences, media,
education, gaming, and energy and power.

The company believes that the new AWS ISV Acceleration Program announced at re:Invent 2020 will
help improve the competitiveness of Chinese ISVs. Accordingly, the new program not only reduces the
number of prerequisites for AWS partners to start engaging with AWS, but also provides resources
and prescriptive guidance along with training discounts to help ISVs acquire skills and capabilities
specific to AWS services. Instead of earning a tier-based badge, ISVs are now able to earn a ‘reviewed
by AWS’ service badge based on the technical validation of the services they offer.

Competition
In China, AWS is a foreign player in a market that is crowded with local providers, such as Alibaba
Cloud, Tencent, JD Cloud, Huawei and Baidu, as well as niche players like ChinaC, ChinaCache,
ChinaNetCenter, Kingsoft Cloud, Qingcloud, Qihoo 360 Technology, Qiniu and UCloud, among others.
Meanwhile, the three telecom operators – China Telecom, China Unicom and China Mobile – have solid
installed bases of customers in both the consumer and business segments. Other regional players that
work closely with their JV partners in China include PCCW Solutions, IIJ, CITIC Telecom and Telstra.
On a worldwide basis, the firm will be compared with the likes of Microsoft Azure, Google and IBM
for transforming enterprises. While facing a growing number of network-centric providers that have
doubled down on cloud – NTT, CenturyLink and Orange Business Services, to name a few – it also
partners for complementary skills.

REPORT REPRINT

SWOT Analysis

  STRENGTHS                                       WEAKNESSES
  AWS has a growing portfolio of products         Despite having a network of global and
  and services with sought-after features         regional IT consultants to help with
  and is backed by a well-established partner     transforming enterprises in China, there is
  program. Investing in building scenario-based   room for improvement to scale its business
  vertical-specific skills is a prudent move.     with smaller MSPs and local specialists in tier
                                                  2 and tier 3 cities.

  OPPORTUNITIES                                   T H R E AT S
  China’s dual-circulation strategy is going      Competing with well-established Chinese
  to define its economic policy in the coming     hyperscalers can be a formidable task. Being
  years. Companies that can ride a wave of        a foreign player, it has its work cut out to
  market segment enthusiasm will stand a          navigate a somewhat ambiguous regulatory
  chance of winning.                              environment.