In a statement to TechCrunch, the Seattle e-commerce giant said Beijing Sinnet, the partner that operates Amazon Web Services (AWS) in China, paid $300 million for the equipment because Chinese laws prohibit foreign companies from owning and operating certain technology for cloud services.
“No, AWS did not sell its business in China and remains fully committed to ensuring Chinese customers continue to receive AWS’s industry-leading cloud services,” said an Amazon spokesperson in a statement to TechCrunch. “AWS continues to own the intellectual property for AWS Services worldwide. We’re excited about the significant business we have in China and its growth potential over the next number of years.” Amazon has been in the Chinese cloud market for about three years now and in 2016 inked a deal with Sinnet. In China, foreign cloud companies have to operate via local partners. (See also: Huawei: New Competitor in China's Cloud Market.)
China's New Cybersecurity Law
The move on the part of Amazon comes as Chinese authorities recently instituted a new cybersecurity law that is designed to give it more control over technology and the flow of information in the country. Under the law, foreign companies that provide computer hardware and services to Chinese companies in the energy, transportation and finance markets, and those that sell to government agencies, critical infrastructure players and public services agencies will be subject to a review by the Cyberspace Administration of China, the country’s online regulator. China is implementing the new security reviews to ensure the technology is not only secure but can be controlled.
In the past, tech companies bristled at the requirements, arguing the government has been pressuring the companies to provide proprietary information about their products and services. But with the market in China growing, tech companies are more willing to comply. Microsoft Corp. (MSFT) recently completed a Windows 10 operating system customized for the country while Apple Inc. (AAPL) this summer announced it is building its first data center in China. Amazon, too, has been caught up in the new regulations with China this summer moving to stop the spread of VPN software used to get around internet blocks put up by the government. Beijing Sinnet sent emails to AWS customers asking them to delete tools that let users bypass the filters, including VPNs. (See also: Microsoft, IBM May Get New Scrutiny From China.)
For Amazon and other cloud providers, China is seen as the next bastion of growth. It's also getting increasingly competitive with Alibaba Group (BABA) and Microsoft closing in on AWS' lead. Earlier this month, Microsoft said it is seeing so much demand for its cloud services in China that it plans to triple its cloud capacity in the country during the next six months. During a forum in Beijing, Microsoft CEO Satya Nadella said demand from local companies is stronger than expected. "China is one of the most dynamic markets, where enterprises are aggressively pushing forward digital transformation, creating abundant growth opportunities," said Nadella, according to ChinaDaily.com, which covered the event