In mid-February, China launched a new national project: building a centralized data center system across eight Chinese regions (in Chinese). It’s called the “East-to-West Computing Capacity Diversion Project,” reflecting the movement of computing and data processing infrastructure from the country’s eastern regions to its western regions.
The diversion project plans to channel the growing demand for computing and data analysis in the country’s prosperous but land-scarce eastern regions to the country’s less-developed but sparse and resource-rich western regions.
According to the February government announcement, the project will set up eight computing hubs and 10 data center clusters. The plan is to build an integrated data center system by 2025. Each hub will connect to one or two data center clusters nearby. The hubs in the west will take offline data needs or needs that demand less internet connection, and the hubs in the northern and eastern regions will take more advanced needs from nearby megacities like Beijing, Shanghai, and Guangzhou. The eight hubs will be located in Beijing-Tianjin-Hebei, Inner Mongolia, the Yangtze River Delta (Shanghai and neighboring provinces), Guangdong-Hong Kong-Macao Greater Bay Area, Chengdu-Chongqing, Guizhou, Gansu, and Ningxia.
This isn’t China’s first attempt to redistribute key resources by way of a grand plan that involves heavy upfront infrastructure investment. But it is the first one that’s centered around data and computing power.
In the first decade of the 2000s, the country successively launched three projects to redistribute natural gas, electricity, and water from one Chinese region to another to achieve economic growth: the “West-to-East Gas Transmission Project,” the “West-East Power Transmission and Conversion Projects,” and the “South-to-North Water Diversion Project.” The logic was to pool resources and demand to make better use of limited resources, such as sending water from the wet south to the dry north, and channeling gas and electricity from the resource-abundant west to the populous east.
The data center project has been built upon policy groundwork laid down over the past three years. The Communist Party first elevated data to the status of a key economic factor (as important as land, labor, capital, knowledge, and technology) in the 19th fourth plenary session in 2019. In December 2020, China’s top economic planner, the National Development and Reform Commission, issued a key policy guideline for setting up a system of “national integrated big data centers” (in Chinese). Last March, the government solidified its emphasis in the key long-term planning document, the 14th Five Year Plan. The five year plan asked the country to grow a data service industry and establish uniform standards in the industry.
Who are the key players?
A data center’s industrial supply chain includes three main sections. First, the upstream section: the infrastructure providers that build data center structures and supply power. The midstream section is made up of business operators that run the data centers. They are a mix of state-owned telecom operators, private cloud service companies, and third-party internet data center service providers. Finally, the downstream section is made up of end-users: companies and government agencies that need systematic data management.
According to a February report (in Chinese) from China’s internet watchdog, the Cyberspace Administration of China (CAC), leading players that have taken part in the project are the two state telecom providers – China Mobile and China Telecom – and a series of cloud service providers from tech majors: Huawei Cloud, Tencent Cloud, Alibaba Cloud, ByteDance’s Volcengine, and Amazon Web Services.
China Mobile will focus on connecting computing resources across different data center hubs and developing communication channels throughout the network. China Telecom will build many of the data centers. As of February, the company had already built 77% of the data centers in Inner Mongolia, Guizhou, Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macao Greater Bay Area, and Chengdu-Chongqing, CAC reported.
Huawei Cloud has started to build data centers in three hubs (Guizhou, Beijing, and Chengdu-Chongqing). The company’s data center in Guizhou is its biggest in the world, with more than 1 million servers. Tencent Cloud has been building two data centers in Chongqing. The first one began operations in June 2018, with 100,000 servers. Alibaba Cloud has plans to build data centers around Beijing, Inner Mongolia, and Shanghai, adding to its data center hubs across 25 regions worldwide.
ByteDance’s Volcengine told CAC that it is building a system of Content Delivery Network (CDN) nodes throughout the country to provide accelerators for transmissions across regions. The team is also looking to cultivate technicians to manage data centers and help western regions to build hardware supply chains for data centers.
Amazon Web Services has plans in the western Ningxia region. Its first data center hub there went into operation in December 2017, and the company announced plans to expand the center to more than double its size in 2021.
Apart from major state companies and tech giants, other niche companies in the data center sector are expected to benefit from the project. Sugon (or Dawning Information Industry Company), a supercomputer manufacturer established by the Chinese Academy of Sciences, has been working with the Chongqing government to help them cut down energy usage in data centers by utilizing immersion cooling technology, according to a government report in May. In addition, China’s top internet data center service providers such as the Nasdaq-listed GDS, Beijing-based VNET and Sinnet Technology, and Shanghai-based Yovole Networks, are expected to work with local governments on their data center projects.
Potential concerns for a major infrastructure project of the digital age
In the last decade, China has continued to see growing demand for data storage and management, thanks to the huge popularity of short-video apps, livestreaming e-commerce, Internet of Things (IoTs), and other data-rich services. Data analytics firm IDC expects China’s big data and analytics industry to reach $11 billion in 2021, and it predicts that number will more than double to $25 billion in 2025. The data center project is an effort to meet these demands ahead of time, but some experts think such foresight could create an oversupply and hurt companies and local economies.
Chen Gen, a science writer and an invited lecturer at Peking University, wrote in a late-April column (in Chinese) that building large-scale and advanced data centers ahead of the demand will “further deteriorate the industry competition situation” and that “oversupply of similar services will inevitably lead to a decline in unit prices, which could result in a decline in profit.”
Chen added that China’s plan to build these data centers with high power efficiency will hike up the cost and make it “difficult for companies to make up the loss in building these centers, even with some government subsidies.” The government has asked large data centers to keep their Power Usage Effectiveness (PUE) below 1.3, which is considered efficient by global standards, and has also demanded that at least 65% of each center’s capacity needs to be in use at any one time.
Such requests ensure that the data center project fits two high-level goals for the Chinese government. One is to set up a “unified domestic market” to tackle local protectionism and increase efficiency. The second is to reach peak carbon emissions by 2030 and become carbon neutral by 2060.
Liu Shiping, director of the fintech research center at the Chinese Academy of Sciences, told state media outlet Beijing Daily (in Chinese) that he thinks the green energy industry is set to benefit from the project. “For now, 70% of our data centers are coal-powered […] in the future, I can see wind, solar, and hydropower in the western Yunnan-Guizhou-Sichuan regions play a big part in data center power supplies.”
Wang Yuanzhuo, a computer science researcher at the Chinese Academy of Sciences, was quoted in the same report as saying that he hoped the project wouldn’t become another example of “heavy in construction, light in application.” In the past, many Chinese regions have blindly invested in projects related to the likes of new energy vehicles and semiconductors due to beneficial government policies, but “many of these projects have been stalled and even hurt the local economy.”
We are still in the initial stages of the national data center project, and it is too soon to tell whether it will make economic sense in the long run. However, China has shown that it has long-term and detailed plans around utilizing data as a key national resource, from passing the Data Security Law in 2021 to setting up a data exchange pilot scheme in the same year and regulating tech companies’ algorithms in March. The data center project will be a key piece of infrastructure as China continues its push to become a powerful digital economy with centralized control and close monitoring of its data.