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TheStreet Open House

Alibaba, China Mobile Push for More of World Cloud Computing Market

Stocks in this article: CHLCRMLNKDIBMMSFTCHA

BEIJING (TheStreet) -- Government agencies that supervise China's digital economy want Chinese companies to control more of the domestic and world cloud computing markets.

Beijing policymakers are encouraging state-run companies such as China Mobile (CHL) and Hong Kong-listed ZTE to expand their existing cloud services. And they're accepting applications for government funding from any domestic company with a major cloud project that meets certain criteria.

The government hasn't said how much it plans to spend on the project, which was rolled out late last month jointly by the National Development and Reform Commission, Ministry of Industry and Information Technology and Ministry of Finance.

NDRC said the government now ranks cloud computing as a nationally strategic industry. Companies in other strategic sectors, such as military hardware manufacturers, are eligible for market protection. The agency also said Beijing would support companies that provide "public service platforms in the cloud, cloud-based platforms for data services, and cloud computing solutions for big data."

The goal is apparently not to challenge online services such as Salesforce (CRM) and LinkedIn (LNKD). Rather the idea is to help domestic companies expand into data storage and cloud-related software and hardware businesses to compete against foreign companies that now sell cloud services in China -- like IBM (IBM) and Microsoft (MSFT).

Tech sector analysts say the government wants to build a cloud computing backbone in China for the domestic and worldwide use of smartphones, smart watches, self-driving cars, home automation systems and other consumer computing devices.

Chinese companies that have already started expanding their cloud-computing businesses include e-commerce giant Alibaba, equipment manufacturer Huawei and China Telecom (CHA). Alibaba, which is planning an IPO in the United States, opened a data storage center in Hong Kong last month.

A China Mobile executive was recently quoted by state media as saying the company plans to invest "tens of billions of yuan" to build or expand cloud computing facilities in remote parts of the country such as southern Guizhou Province, and the northern cities of Harbin and Hohhot. The company has more cloud experience than most in China, having entered the sector in 2007.

The Ministry of Industry and Information Technology estimates Chinese cloud computing revenue grew 36% last year from the 2012 level to 4.76 billion yuan, or about $760 million. But the country's share of the global business was only about 4%, the ministry said, compared to 50% for U.S. companies and 23% for those in Europe.

State media said the government wants China's cloud service providers to expand revenues by at least 50% annually over the next few years.

To benefit from the government initiative, analysts with Guotai Junan Securities have recommended Chinese investors buy stock in domestic computer-services companies in the communications, medical services and pharmaceutical sectors.

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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