1. As China’s digital businesses continue to grow and as traditional sectors continue to digitize, there will be greater demand for data center infrastructure and high computing capacity.
2. The “Eastern Data, Western Computing” plan was first introduced at the end of 2020 when the National Development and Reform Commission (NDRC), the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), and the National Energy Administration (NEA) jointly released the Guiding Opinions on Accelerating the Construction of a National Integrated Big Data Center Collaborative Innovation System (the “guiding opinions”). These guiding opinions first proposed the construction of a nationwide integrated data center system.
DIGITIZATION IN CHINA
1. Digitization is one of the government’s key development targets for the next ten years and a central goal of the 14th Five Year Plan (FYP). According to the plan, China has already expressed its efforts in accelerating the development of a coordinated big data center infrastructure at the national level.
2. In support of this plan, Heying, a wholly-owned subsidiary of Tianjin Zhengxin Group Co., Ltd, and Keppel Data Centre Fund II LP (KDCF II) have engaged in a strategic partnership to jointly create a greenfield data center in Greater Beijing, China. This latest development marks Keppel’s sixth project since entering the data center market in mainland China in 2020.
3. It’s worth noting that the China Data Center Market was valued at USD 13.01 billion in 2020 and is anticipated to grow at a CAGR of 19.2% from 2021 to 2026 to reach USD 36.18 billion.
4. In addition, China is putting a lot of effort into establishing itself as a leader among other countries when it comes to building data centers. Larger enterprises are looking to scale up their data centers to ensure the stability and dependability of data services as the use of 5G, wearable technology, the internet of things, and artificial intelligence fuel an increase in demand for computing power.
SHORING UP COMPUTING POWER & DATA STORAGE CAPACITY
1. China recently released a series of policy documents giving the green light to the construction of several new data center clusters in four regions around the country. These new data center clusters form part of a larger plan, called the “Eastern Data, Western Computing” plan (东数西算 dōngshù xīsuàn), first proposed in 2020. The plan aims to build a nationwide data center and computing system that will ultimately see data transferred from China’s populous eastern regions to the more rural and resource-rich western regions.
2. The plan is a pre-emptive push by the government to shore up its computing power and data storage capacity in anticipation of continued digitization and technological development, as well as an attempt to correct an imbalance between the computing supply and demand in the country.
3. Under the plan, eight new “computing hubs” will be established – three in the east and five in the west – in which 10 new “data center clusters” will be constructed. The plan will require considerable infrastructure investment and input from private businesses and will present new opportunities and challenges for industries.
POLICY PUSH
1. The “Eastern Data, Western Computing” plan has now been further propped up with the release of several supporting and actionable policy documents. These include the Implementation plan for the computing power hub of the national integrated big data center collaborative innovation system (the “implementation plan”), released by the NDRC and other ministries in May 2021.
2. Later, in July 2021, the plan further was later fleshed out when the MIIT released the Three-year action plan for the development of new data centers (2021 – 2023) (the “action plan”), which outlined key targets for the development of China’s data centers and computing capacity.
3. The action plan called for accelerating the construction of four new data center clusters in the Beijing-Tianjin-Hebei (Jing-Jin-Ji) area, the Yangtze River Delta (YRD) area, the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), and the Chengdu-Chongqing Economic Circle. Meanwhile, the action plan requires the regional hubs of Guizhou, Inner Mongolia, Gansu, and Ningxia to improve the service quality and efficiency of computing power to form a base of guaranteeing computing power for non-real-time purposes (such as data storage and backup) for the whole of China.
4. More recently, in February 2022, the NDRC released four documents approving the construction of the first four regional hubs: the YRD hub, the Chengdu-Chongqing hub, the Jing-Jin-Ji hub, and the GBA hub.
CHINA'S GROWING DEMAND FOR COMPUTING POWER
1. The need for more data centers and high computing capacity will become increasingly pronounced as China’s digital industries continue to develop and as traditional industries continue to digitize. Digitization is one of the government’s key development targets for the coming decade and a core target in the government’s 14th Five Year Plan (FYP) released in early 2021, the country’s main development roadmap for the period from 2021 to 2025.
2. China already has a relatively strong network of data centers and high computing capacity for consumer application. The penetration rate for mobile internet in China is very high and developed very quickly over the last decade. The current infrastructure has been able to handle the daily mobile computing and data needs of hundreds of millions of mobile internet users, who use an average of 12.62 GB of mobile data per month, according to a report by the China Academy of Information and Communications Technology (CAICT).
3. But today, computing needs go far beyond the individual requirements of consumers. With the advent of novel technologies, such as the Internet of Things (IoT) and Industrial Internet of Things (IIoT), artificial intelligence (AI), big data, intelligent connected vehicles, and cloud computing, among many others – businesses and industries are using increasingly computing-heavy applications, which have much higher network and processing requirements than the average mobile user.
4. The plan therefore aims to get ahead by ensuring sufficient computing capacity and preventing a potential crunch that could stifle growth. And there is every reason to believe demand in China will continue to grow, as multiple tech industries will require a lot more computing power if they are to meet the growth targets set by the government (such as those for Internet of Vehicles, big data, and the digital economy, to name a few).
SHIFTING TO CHINA'S WESTERN
1. The main purpose of the plan is to correct an imbalance in supply and demand for computing power and data processing. There is an extremely high demand for network processing capacity and storage in the populous eastern and southeastern regions of China, where the majority of industry and business is located; as things stand, the western regions do not have as much need for data centers and processing power.
2. Conversely, China’s remote western regions have ample access to land and resources, in particular, renewable energy from wind, solar, and hydroelectric power. Yet, these areas have a much lower demand for computing power, given the much lower population density and smaller industrial and business presence.
3. At the moment, the majority of China’s data centers are located in the east, where they are becoming increasingly costly and difficult to maintain. Lack of access to renewable energy also means many of these data centers rely on fossil fuels, contributing further to pollution and climate change.
4. Through the “Western Data, Eastern Computing” plan, the government is hoping to send the massive amounts of data produced in eastern China to data centers in western China for processing and storage, thereby increasing the demand for computing services in western China and reducing the pressure on data centers in eastern China.
5. Moreover, this would enable data centers in eastern China to focus on processes that are in high demand by businesses in the region but also have very high network requirements, such as AI and the industrial internet.
INFRASTRUCTURE REQUIREMENTS
1. This will require the construction of a considerable amount of infrastructure in the form of data centers, computers, and supporting facilities. Specifically, the government plans to create eight computing hubs in key areas in western and eastern China, and then build 10 data center clusters within these hubs.
2. These 10 data center clusters will contain several data centers adapted to the purposes of the region, with the larger, more power-hungry data centers concentrated in the data center clusters within the western hubs and low-latency data centers located in the vicinity of large eastern cities.
OPPORTUNITIES & CHALLENGES
1. The Eastern Data, Western Computing plan is a huge infrastructure project, which will provide significant opportunities for businesses operating in the space, while providing local governments with a high-quality project to invest in. It could also help boost the economy of the regions in which the data center clusters are located, as it ropes in a number of auxiliary industries and businesses.
2. At the same time, the realization of this project will be expensive and will require a significant amount of technological innovation to make the data centers and data transmission efficient and effective. There will undoubtedly also be growing pains as data center expansion may lead to oversupply on the road to reaching a better-balanced industry.
3. This new project will be a major boon for the country’s telecom companies. As China’s mobile internet market has become increasingly saturated, both in terms of competitors and market penetration, and with prior large-scale industrial projects, such as 5G expansion fast reaching their zenith, many telecom companies are looking to find new areas for growth.
4. Telecom company’s existing capabilities in areas like computing networks, transmission, and cloud computing, as well as critical hardware components and equipment, such as fiber optic cables that will enable the transmission of data thousands of kilometers across the countries, are well-served to support the construction. Several telecom operators have announced they will increase spending budgets to add their support to the government’s initiative.
5. However, it bears mentioning that this role will almost exclusively be filled by telecom behemoths, such as China Telecom, China Mobile, and China Unicom, while smaller companies are therefore only likely to benefit by providing third-party products and services to the telecom operators.
HARDWARE & EQUIPMENT REQUIREMENTS
1. The project will require a significant amount of infrastructure construction and investment, which will provide new opportunities for companies that provide computing hardware and equipment, raw materials, and software services. This includes components, such as servers, switches, power supply equipment, power system supply integrators, materials such as refrigerants, and broadband services.
2. Examples of foreign companies with a significant presence in China’s data center industry are Intel, AMD, Cisco, and NVIDIA. Given the focus on renewable energy and power supply, auxiliary industries like wind, solar, and hydroelectric power will also benefit. These industries are already highly developed in China, with domestic players enjoying a market monopoly, meaning that foreign companies are unlikely to be able to make a significant contribution to the industry.
3. It bears mentioning that the technology to make this system viable and efficient still needs to mature or be developed. This means there will be a considerable need for technological innovation, and could present opportunities for innovative upstarts, especially as larger, more dominant, and established companies tend to be more risk-averse when it comes to technological investment.
4. Notably, the action plan also includes calls for increasing research and investment in core technology and encouraging product innovation. According to the action plan, companies are encouraged to increase investment in technology R&D in areas such as data center prefabrication, liquid cooling, and other facility layers, dedicated servers, IT solutions such as storage arrays, and network solutions such as hyper-converged networks.
5. For software, the action plan highlights the need for innovation in areas, such as new data center infrastructure management (DCIM) software, and cloud-native and cloud-network-edge integration – opening up new opportunities for software and cloud computing companies.
KEPPEL DATA CENTER INFRASTRUCTURE
1. The private fund management division of Keppel Capital, Alpha Investment Partners Limited (Alpha), will manage KDCF II, which will acquire a majority stake in Huailai Data Center and co-develop the property with Heying. The project’s estimated RMB 1.4 billion (SG$292.0 million) in development costs. Additionally, Keppel Data Centers and Heying will work together to apply international best practices for operating data centers at Huailai Data Center.
2. Huailai Data Center development is done in stages. It is anticipated to have a gross floor area (GFA) of 678,807 sq. ft. when it is finished by the end of Q1 2023. This space can accommodate more than 5,700 high-density racks and will meet China Data Center Class A GB-standard requirements. A significant Chinese cloud service provider has shown substantial interest in Huailai Data Center.
3. Huailai Data Center will be equipped with indirect evaporative cooling (IDEC) systems, which use evaporating water to cool airstreams and manage humidity in accordance with Keppel’s Vision 2030, which places sustainability at the center of its strategy. This approach uses 50% less energy than conventional chilled water systems.
4. Separately, Keppel is not the only company accelerating the development of data centers in China. In fact, there are numerous players in the China data center market, including well-known internet juggernauts like Alibaba Group Holding Ltd, China Telecommunications Corporation, and China Mobile International.
5. In light of the major players’ ability to assist China’s aim to expand its digital economy, it is safe to say that the country has a reliable data center ecosystem.
DIFFICULTIES FOR DATA CENTER OPERATORS
1. Although it may seem counterintuitive, it is not clear that this initiative will be beneficial to data center operators in the short term. There are a few different reasons for this.
2. First of all, large-scale construction of data centers will serve to undermine the industry’s competitiveness, and a potential oversupply of computing capacity will further reduce unit prices and erode data center’s already thin profit margins.
3. The technical requirements for the data centers in the policy documents are also very high, which will make it a relatively expensive capital investment for operators, even if they are able to receive some government subsidies.
4. Finally, the market for industrial and business computing applications is still developing. The goal of the plan is partly to boost digitalization of industry and spurring development of technology and digital industries, which inevitably means that it is banking on potential demand, rather than existing demand. This means the project poses a relatively high risk for data center operators who may have to wait many years to see returns on their significant investments.
5. Longer-term, however, it is fairly certain there will be a need for more computing power as high-tech industries continue to develop and the government’s push for digitalization makes progress.
Source:
https://techwireasia.com/2022/07/data-center-infrastructure-continues-to-flourish-in-china-with-keppels-sixth-project/
https://www.china-briefing.com/news/china-data-centers-new-cross-regional-plan-to-boost-computing-power-across-regions/
