Asia 2020: Everything is bigger in China

Buildings. Budgets. Revenues. Power. Square footage. You name it. China has and has built some of the world’s largest data centres and is harvesting some of the fastest growing revenues on the planet from its hubs. But does size matter and is it all what it seems from the outside? João Marques Lima delves into the East’s best kept secret.

Home to the world’s largest data centre – China Telecom’s $3bn, 10.7 million sqf hub in Inner Mongolia -, China has asserted is place on the global map of data centre destinations.

And if you were asking, the world’s second largest data centre ($1.92bn CAPEX; 7.7 million sqf) also happened to be located in China, and not far from its “bigger brother”.

China is on its way towards $11bn in colocation by 2020 and more than $16bn in overall data centre revenues by then.

Generally split into six regions – Beijing, Shanghai, Guangzhou & Shenzhen, Western Region, Central Region and Northeast Region – China has a vast landmass with a large population that continues to increase both in the number of citizens and the number of internet users.

This continues to place China as an interesting investment destination for investors worldwide.

From retail and wholesale colocation to hyperscale facilities, the market continues to grow and expand.

According to the MIIT, at the end of 2016 there were 1,641 data centres in China for a population of nearly 1.4 billion people.

A further 437 centres are due to open, more than doubling the country’s cabinet capacity to 2.49 million.

Apple, AWS, Microsoft, IBM, all the American giants have a foot in China through local partners like GDS, 21ViaNet, Sinnet and local government.

The world’s largest operators – Equinix and Digital Realty – also have their own facilities either in mainland China or Hong Kong – as a gateway – with continuous positive revenue cash flows.

It is in the cloud segment that much attention is being paid, with Alibaba Cloud projecting the Chinese infrastructure as a service (IaaS) market to be growing at 100% a year.

The major IaaS providers in the region today are Aliyun (41% market share), China Telecom (9%), Tencent Cloud (7%) and Jinshan Cloud (6%).

Another big driver for data centre growth have been the financial and government institutions.

Nonetheless, DBS alerts that these two verticals have also been more cautious than others in adopting cloud applications due to security concerns.

The bank expects that when network security for cloud services improves, it will trigger more institutions to move to the cloud, and subsequently, increase the need for further data centre expansions.

The Chinese data centre is also very much dominated by telecommunication companies, with China Telecom encompassing 32% of the whole market, followed by China Unicom (13%), China Mobile (7%), 21 Vianet (7%), Dr Peng (3%), Sinnet (2%), GDS (2%), Wangsu (1%) and AtHub (1%).

However, a recent report by the Ministry of Industry and Information Technology (MIIT) and the Chinese Ministry of Finance, published by the Financial Times, has revealed that about 50% of data centres in secondary Chinese cities are running on empty, with Singaporean bank DBS alerting that “there is a geographical mismatch of supply and demand” in China.

This will in turn drive in a surge in data centre M&A across some of the top-tier cities by leading data centre operators, who will be looking for incomplete projects or low-tier projects in top tier data centre hot spots.

Some of the incomplete data centres may be put to market by smaller scale data centre operators who may lack capital or operational expertise to complete their projects, DBS alerted.

Nevertheless, the bank still expects the national industry to grow at a 20% CAGR driven by surging demand for cloud and internet services.

In a recent report, DBS said: “The demand for data centres’ services are mainly from Beijing, Shanghai, Guangzhou and Shenzhen.

However, supply of new data centres in these cities is limited due to scarcity of land and power supplies.

“We believe that the utilisation rate is high at around 80% for established data centres in top-tier data centre cities and demand will continue to grow at 20-30% per annum.

The estimated demand for data centres will be 832k cabinets, which is 33% higher than the forecasted capacity of 627k cabinets in 2018.”

Yet, the Chinese data centre market across its top-tier data centre cities is projected to continue to suffer from a shortage of space.

“The aggregate supply in top-tier data centre cities was around 84k in FY18,” DBS said in the same report.

“Our study suggests that future new supply will be more difficult.

If we were to assume annual additional supply of 84k (or 15% growth YoY) going forward, total supply will reach 711k and 795k in FY19 and FY20 respectively, supply shortage will widen as the demand is growing faster at 20-30% than the supply increase of 15%.”