Market comment 2022

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Cloud computing is a vital part of Amazon’s formula, with its Amazon Web Services throwing off so much cash it can subsidize the e-commerce business and fund new initiatives that may not pay off for years. In fourth quarter 2021, AWS accounted for more than 100% of the company’s operating profit. Alibaba envisioned its cloud business serving much the same function, identifying it as one of the company’s “strategic pillars.” Chief Executive Officer Daniel Zhang once said the business could eventually become the “main business of Alibaba.” He told analysts during an earnings call in February that China’s cloud market would grow into a “trillion RMB opportunity” by 2025. 

But Beijing has derailed Alibaba’s ambitious plans, suggesting China’s tech giant may never achieve Amazon-level success. In recent years, the Communist Party has increasingly focused on the use and security of data, and declared data to be a critical factor of production, making its defense a priority for the government. That designation, which also applies to land and fuel, requires companies and government agencies to safeguard their data as a matter of national security. A broad swath of Chinese institutions, including  China Construction Bank and local municipalities, have responded by moving closer to state-backed cloud platforms instead of those by private firms like Alibaba, according to people familiar with the matter.

Beijing Crackdown Derails Alibaba’s Bid for Amazon-Size Profit