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Chinese telcos relish their new role at core of digital economy

In the Chinese zodiac, the rabbit is said to be clever, thoughtful and capable of diligently working its way to its goals. These may be handy traits for Chinese operators as they negotiate a period of transition in the Year of the Rabbit, but it's fair to say that it's been going swimmingly so far.

The three big telcos are being maneuvered into position as the infrastructure pillars of China's digital economy, which is at the heart of the national growth plans. The digital economy accounted for just under 40% of China's GDP in 2021 and is forecast to top 50% by 2025, according to China's Ministry of Industry and Information Technology. The biggest manifestation of this shift to date has been the stellar growth in the operators' cloud businesses.

All experienced more than 100% growth in their cloud businesses in the first three quarters of 2022; after two years of government bashing of the private tech sector, enterprises see that doing business with state-affiliated businesses is the safe choice.

More digital growth is on the cards as China welcomes the Year of the Rabbit.
  (Source: zhang kaiyv on Unsplash)
More digital growth is on the cards as China welcomes the Year of the Rabbit.
(Source: zhang kaiyv on Unsplash)

In the total cloud services market, Alibaba still has the biggest share, but China Telecom ties with Huawei for second place. In the managed cloud services market, which was worth 12.1 billion Chinese yuan (US$1.8 billion) – up 28% - in the first half of last year, the telcos took three of the top five places, according to IDC.

Too important for private sector

Last year, China Telecom was also designated as the first official national cloud provider in a joint venture with three other state-owned companies, making it the preferred provider for government projects. At a more fundamental level, Chinese economic planners have determined that data is now a factor of production, like land and labor, and as a strategic asset is far too important to be left in the hands of the private sector.

So the operators are being pressed into service to build out the national "computing power network," which also intersects with another priority project, the 'east-west' scheme. This is a plan to build a chain of big data centers in western China, taking advantage of the lower land costs and cleaner energy, and link them up with big fiber pipes to the economic centers on the eastern seaboard.

The operators have not revealed just how much the burden of being default digital infrastructure providers is costing them, but it is unlikely to be a significant increment over their existing capex budgets.

That certainly appears to be the thinking of investors. The three Chinese players are rare among contemporary telcos in enjoying a positive ride in the stock market. On the Shanghai exchange last Friday, China Telecom spiked 10% - the daily limit - China Unicom rose just under 7% and China Mobile nearly 5%. Since January 1 on the Hong Kong Exchange, meanwhile, China Telecom has jumped 16.9%, China Unicom 8.4% and China Mobile 6.5%.

The operator bosses are now selling a new vision of their companies. "You can no longer look at the telecom industry with old eyes," China Unicom chairman Liu Liehong told investors recently. "The telecom industry is on the new track of the digital economy."

For these telcos, the Year of the Rabbit means more of the same - more cloud and infrastructure and a growing role in the digital world.

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— Robert Clark, Contributing Editor, special to Light Reading

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