China’s Q3 2024 cloud spending hits $10.2 billion

In Q3 2024, cloud infrastructure service spending in mainland China reached US$10.2 billion, representing an 11% year-on-year increase and a return to double-digit growth. AI is emerging as a significant driver of cloud adoption, with a growing number of enterprises embedding AI capabilities into cloud-based applications to enhance intelligence and streamline operational efficiency. For example, AI-powered recommendation systems and automated operations have gained broader adoption across various industries.

China’s top three cloud service providers remained stable this quarter, with Alibaba Cloud, Huawei Cloud and Tencent Cloud maintaining their leadership positions and collectively commanding 70% of the market. At the same time, telecom operators, led by China Telecom, are pursuing differentiated approaches to expand their presence in the cloud services market, emphasizing industry-specific solutions and localized offerings. In Q3 2024, partner-driven cloud revenue in China remained stable, accounting for 26% of total market revenue. With the ongoing expansion of the AI ecosystem, this share is expected to grow as demand for integrated solutions and collaboration increases across industries.

This quarter, China’s leading cloud providers have aligned with global trends by significantly increasing their investments in AI infrastructure and high-performance computing. These efforts reflect a strategic response to the escalating demands of large-scale AI model training and real-time inference, driven by advances in generative AI and other cutting-edge applications.

“Both Alibaba Cloud and Tencent Cloud further elevated their capital expenditure, channeling resources into enhancing computing power, scalability and efficiency,” said Canalys Analyst Yi Zhang. “These investments aim to solidify their positions in key strategic domains, ensuring they remain at the forefront of technological innovation and market competitiveness in an increasingly AI-driven landscape.”

The distinct characteristics of the market environment have influenced the approach to AI investment in China. Compared with the large-scale, high-intensity spending by US cloud hyperscalers, Chinese cloud vendors have adopted a more balanced strategy. This reflects the current state of AI adoption in China, where enterprises are still at the exploratory stage and overall computing demand has not yet fully materialized. Additionally, the relatively modest market size and computing requirements of Chinese AI startups contribute to a more cautious expansion pace. Consequently, while AI services in China continue to grow, their short-term expansion is expected to proceed at a steady and gradual pace.

Alibaba Cloud remained the leading player in mainland China’s cloud market, commanding a 36% share and achieving 7% year-on-year growth in Q3, largely driven by its public cloud business. Its AI-related products have sustained triple-digit revenue growth for five consecutive quarters, further solidifying its public cloud leadership. Over 300,000 enterprise customers have already adopted Alibaba Cloud’s AI foundation model, Tongyi Qianwen, to enhance their operations. At the Paris Olympics in July 2024, Alibaba Cloud demonstrated its technological prowess by using AI-enhanced broadcasting to transmit live signals from Paris to audiences in over 200 countries and regions worldwide. Looking ahead, the company has announced plans to significantly increase short-term investment in AI-related infrastructure to meet the rising demand for cloud computing and API services essential for AI model deployment.

Huawei Cloud, the second-largest player in China’s cloud services market, achieved steady growth with a 13% increase in Q3, securing a 19% market share. It is making significant strides in AI development, with its solutions now implemented across more than 30 industries and over 400 business scenarios. Building on this momentum, Huawei Cloud upgraded its Pangu 5.0 model in September, originally launched in June 2024, and introduced the “1+N” Pangu Assistant system to address high-frequency business scenarios for customers. To further support innovation, it launched the Huawei Cloud AI for Startups program, offering AI startups up to CNY1.2 million (around US$165,000) in cloud computing resources, reinforcing its commitment to ecosystem development and technological leadership.

Tencent Cloud ranked third in the market, holding a 15% share in Q3. The surge in AI demand has significantly boosted its GPU-related revenue, which now accounts for more than 10% of its IaaS revenue. Tencent Cloud’s AI-related solutions have been widely adopted, serving over 400 leading Internet companies. In September, it introduced the Hunyuan Turbo foundational model, delivering a 100% improvement in inference efficiency, a 50% reduction in deployment costs and a 20% increase in decoding speed compared with its predecessor. To further enhance its infrastructure, Tencent Cloud announced a CNY3.6 billion (around US$500 million) investment to build its third data center in Indonesia, with completion scheduled for 2030. Canalys