China Telecom wins bid for government cloud computing contract for only RMB 0.01

China Telecom recently won a bid to provide IT services to a government information center in Liaoyang, a third-tier city in Liaoning Province, for as little as RMB 0.01. This has sparked controversy for alleged price distortion and unfair competition, local media is reporting (in Chinese).

The Liaoyang city government has set aside RMB 8.93 million for the procurement of hardware needed in the cloud computing and big data processing platforms of its information center, among others, according to an online procurement announcement published by the Liaoyang government. In addition, the bid winner is requested to provide routine maintenance for the platforms for a period of 10 years.

China Telecom’s bid underscores the rising competition in the country’s cloud computing sector, no stranger to such practice. Last month, Chinese internet giant Tencent reportedly won a government cloud service contract with an RMB 0.01 bid, in its attempt to expand its foothold in the country’s huge cloud market as well as wrest market share from Alibaba’s cloud computing unit Aliyun, estimated by Morgan Stanley Research to have grabbed half of the country’s US$ 2 billion public cloud market (in Chinese).

Telecom equipment maker ZTE’s unit ZTE Soft Technology made a similar move last January by putting in an RMB 0.01 bid for a real-time communication system contract for the Ministry of Public Security, which also provoked the ire of its competitors.

Apart from its telecom peers, China Telecom is also facing ever-increasing pressure from internet firms, as the rapid expansion of these firms has taken a toll on its profits in recent years. The company’s 2016 net profit plummeted 10.2% year-on-year to RMB 18 billion, according to a financial report it recently released (in Chinese).

Industry observer Xiang Ligang held that the company is using the lowballing strategy to pave the way for their future development, as there may be some value-added or additional services extended from the current project in the future.

Cloud computing projects are usually constructed in stages, and there will be expansion projects once a phase one project is completed, Xiang added.