How Do Private Tech Companies Fit Into China's Digital Government?
Exploring the intersections between government, private enterprise, and state-owned enterprises in tech and cloud
At China’s Central Economic Work Conference (CEWC) last week, Xi Jinping stated that he has “consistently supported” private enterprises. As pointed out by the People’s Daily, this support can be seen in the growth of private business in Zhejiang during Xi’s tenure in the provincial government nearly two decades ago, as well as in a statement he made in 2018: “Private enterprises and entrepreneurs are on the same side as us.”1
The relationship between China’s government and its private enterprises is a constantly evolving one. As the government seeks to expand its digital, data-driven infrastructure, the tech industry provides a particularly relevant look into this relationship.
We’ll begin by examining the landscape for collaborations between China’s government and its private enterprises in the tech sphere, with a focus on cloud. Finally, we’ll get more specific and dig into Tencent’s recent interest in the government cloud market.
The Government-Enterprise Relationship
In this context, the term 政企 (zhèngqǐ, literally “government-enterprise”) is used to describe the relationship and distinction between China’s government and its businesses. The meaning of “enterprise” in this phrase can also encompass state-owned enterprises. While private enterprises are the focus of this article, we’ll discuss how they operate within the government-enterprise market — including their interactions with state-owned enterprises.
Some of this publication’s past articles have touched upon the relationship between China’s private companies, state-owned enterprises, and government, including Alibaba Cloud’s involvement in the “Smart Hainan” initiative (August 2022) and the involvement of Huawei Cloud and Alibaba Cloud in a cloud storage project for China Mobile (October 2022).
An example of how the government-enterprise relationship is discussed in government policy can be found in a list of regulations for promoting Beijing’s digital economy that the standing committee of the Beijing Municipal People’s Congress recently published:
In addition to laws, administrative rules, and other regulations, digital infrastructure can leverage multiple methods, such as government investment, government-enterprise cooperation, and franchising. All kinds of qualifying market bodies and social capital are entitled to participate equally in investment, construction, and operation…
Departments for development and reform, market oversight, network and information, and the economy should optimize the economic development environments for platforms, promote an open ecosystem for platform enterprises, and push for data sharing between the government and enterprises through methods such as cooperation on projects.
Taking a Broader View
This month, the Ministry of Industry and Information Technology (MIIT)-affiliated think tank CAICT published a white paper on modernizing governance in the digital era. The paper covers a lot of ground, but several key sections discuss the relationship between China’s government and enterprises, both for cloud and tech in general.
The white paper provides a great deal of insight into the digital government-enterprise market. It paints this market as a growing one that faces issues in a few core areas.
In its introduction, the paper mentions government-enterprise cooperation in the same breath as big data, AI, and blockchain — buzzwords found in basically any modern Chinese tech policy document.
The construction of regulations and standards aimed at new technologies and patterns is lagging. Rules for big data, artificial intelligence, blockchain, and government-enterprise cooperation are still immature. There is limited guidance for local governments engaging in these types of work.
Later, the paper specifically mentions the imperfect systems for managing operational patterns for government-enterprise cooperation as a common problem faced for applications of digital technology.
As the construction of digital governments accelerates, government-enterprise cooperation has transformed from the simple procurement of projects to entrusting businesses with operational matters. Situations in which enterprises take part in the operations for government informatization projects are becoming increasingly common. However, public documents list relatively few standards for enterprises operating government digitalization projects. In reality, this often leads to administrative risks.
First of all, the demand for governments to introduce applications for new technologies continues to rise, but their ability to supervise technical risks is not equal to this demand. Governments often lack effective means of detecting whether an enterprise can meet secure operational requirements or increase the scope of data usage. In recent years, there have been multiple instances of data leaks2 and application crashes in enterprise-run government clouds.
Second, issues such as asymmetric information and difficulties in linking supply and demand often occur in the process of government-enterprise cooperation. Enterprises, with their individual standardized playbooks, may be unable to satisfy governments’ complex transformations to procedures and their bespoke, individualized demands.
In addition, managing the disparities that exist among operations enterprises’ technical processes will make the next stage of promoting interconnected platforms more difficult.
The paper immediately delves into specific details about the government-enterprise tech market and also touches on cloud:
Enterprises like Alibaba, Tencent, and Huawei already occupy advantageous positions in the smart city market. There are numerous players in China’s IaaS market for government and public cloud, including Alibaba Cloud, Inspur, [China Telecom’s] Tianyi Cloud, and Huawei Cloud.
Due to restrictive conditions, such as differences in technical processes and the complexity of data migrations, the digital transformation of local governments often contains a certain degree of dependence on operations enterprises.
In addition, due to market competition, operations enterprises often lack the motivation to work in an interoperational manner with one another. For example, different cities and different levels of government within the same province may use different cloud providers. The possibility of cross-cloud interoperability issues also poses a major challenge.
Finally, when governments promote applications for new technologies, they often run into sizable barriers and technical costs; there may also be potential security concerns. At present, there is a noticeable lack of mature systems and mechanisms for evaluating whether to use new technologies, whether these technologies are used well, and whether a business offers appropriate products.
Case Study: Tencent’s Move into Government Cloud
Let’s narrow our focus to the cloud market. Tencent is one example of a private enterprise that has been making more deliberate moves into the government-enterprise cloud market. In a recent interview with Jiemian, Tencent vice president Li Qiang (and Tencent’s president of government-enterprise matters) discussed Tencent’s plans for moving into the government-enterprise market via cloud.3
According to the article, the current top players in the government cloud market are traditional IT manufacturers like Huawei, Inspur, and state-owned technology and semiconductor manufacturer Tsinghua Unigroup, as well as state-owned communications carriers such as China Telecom, China Mobile, and China Unicom. Internet-centric enterprises like Alibaba Cloud and Tencent Cloud, on the other hand, don’t wield as much influence in this market.
Li stated that Tencent’s advantage in the government cloud market lies in its long history and accumulated experience in public cloud. He believes that Tencent’s competitors will not be able to match this advantage in the short term.
Competing with state-owned enterprises
We’ve already mentioned that the government-enterprise market includes state-owned enterprises (SOEs) as well as private ones. This results in an interesting dynamic of competition and cooperation between these two types of enterprises.
The Jiemian interview with Li Qiang provides some further background into the relationship between private enterprises and SOEs within the government-enterprise market, as well as how Tencent is positioning itself in this market:
The government-enterprise market has seen a boom in recent years. During this time, many SOEs have also competed for government cloud contracts.
While many have assumed that Tencent’s status as a private company gives it a disadvantage compared to SOEs, Li Qiang believes that Tencent’s status has only a superficial effect.
According to Li, government bodies care more about cloud security and the level of control they have over cloud-based systems rather than whether the company providing these services is private or state-owned.
An effective cloud computing business requires both capital and technology. While SOEs have ample amounts of capital and government backing, Li Qiang stated that Tencent’s tenure in the cloud computing industry gives it a technological advantage over SOEs. In particular, he pointed to Tencent’s decade-plus history of developing IaaS, SaaS, and PaaS solutions.
Working with SOEs
While the aspect of competition seems inevitable in this system, it’s also worth pointing out the level of collaboration that can also occur.
Some readers may be aware that Tencent formed a joint venture with China Unicom in November. This joint venture will focus on providing CDN (content delivery network) and edge computing services. The announcement came amid several later-debunked rumors that state-owned companies would take a stake in Tencent. A China Unicom announcement framed this as a "normal business collaboration between [China Unicom] and Tencent."
This also isn’t the first time Tencent has worked closely with China Unicom. In 2017, China Unicom announced its intent to add over 9 billion shares to the company and invited various internet companies, including Tencent, to invest. Tencent invested a total of 11 billion CNY, accounting for 5.33% of the total new shares. Other investing companies included Baidu (7 billion), Alibaba (4.3 billion), and Jingdong (5 billion).
To further illustrate Tencent’s level of collaboration with SOEs, Li Qiang also pointed out that his company has worked with SOEs in a variety of areas, ranging from low-level work to hardware R&D and deploying PaaS and SaaS on localized hardware.
As the digitalization of China’s government grows in both scale and velocity, private enterprises will continue to play a crucial role. What remains to be seen is how the bottlenecks in government-enterprise relationships discussed in the CAICT white paper — most noticeably, the lack of consistent standards for working with private enterprises — will be handled.
Subscribe to Cloudology for free insights into Chinese cloud & tech.
Credit is due to Trivium’s tech team for highlighting several key sources and themes in their recent coverage, as well as inspiring the topic of this article.
A Quick Note From Cloudology
I started Cloudology about half a year ago. Since then, this newsletter has grown to encompass both a decently sized readership as well as a breadth of content spanning the past, present, and future of Chinese cloud and tech. I’ve also connected with others in the China tech space and learned more about their journeys and insights.
As some of you may know, I work a full-time software engineering job. I’m also pursuing a master’s degree in computer science in my spare time (which I plan to complete by the end of 2023). In light of these commitments, rather than publishing once a week, which I’ve generally attempted to do since July, I’ve decided to space these articles out further.
Finally, I want to acknowledge that I’ve greatly appreciated the feedback and support from those of you that have reached out and/or shared my work — as well as from everyone who has subscribed.
Thanks for reading Cloudology in 2022. Let’s stay in touch in the coming year.
Note that Li has over two decades of experience at SAP, the German multinational software corporation, where he was responsible for handling numerous government contracts.