Chinese internet giant Tencent Holdings opened its first data center in Silicon Valley this week, expanding cloud computing services into the U.S. even as American companies complain they face growing restrictions when doing the same in China.
With Wednesday's statement, Tencent becomes the second Chinese company to open such a center in the U.S.'s technological heartland. Alibaba Group Holding, China's largest e-commerce company, already operates two data centers there and a third on the East Coast.
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Alibaba and Tencent are boosting their cloud-computing businesses as they seek to tap the growth of Chinese companies and their demand for computing power overseas. Cloud platforms provide additional storage, computing, and networking resources to help firms grow at lower costs. Data is stored and accessed over the internet, reducing the need for on-site servers.
Tencent's statement comes a month after a group of U.S. lawmakers wrote a letter to China's Ambassador Cui Tiankai in Washington over China's restrictions on cloud computing for foreign companies.
Beijing already requires overseas cloud providers to form joint ventures to operate in the country. It has proposed requiring them to turn over essentially all ownership and operations to Chinese partners, the lawmakers argued in the letter viewed by The Wall Street Journal. This could result in the transfer of valuable U.S. intellectual property, according to the letter.
"The access for foreign cloud companies in the market today is much more restrictive than it has been in the past," said Jake Parker, the vice president for China operations at the U.S.-China Business Council, an organization that represents 200 U.S. multinational companies operating in the country.
In November last year, China's Ministry of Industry and Information Technology put out a draft notice of an industry regulation that would potentially shift a lot of operational control to the Chinese partner, he said. The final version has yet to be released, Beijing-based Parker said. The MIIT wasn't immediately available for comment.
Further restrictions on access to the cloud industry would put more strain on relations between China and foreign tech companies, already terse as the world's second-largest economy has increased censorship and demanded more control over data and operations in recent years.
China's market for cloud infrastructure as a service (IaaS) grew 68% to $1.47 billion in 2016, according to industry researcher IDC. Microsoft Corp. and Amazon.com Inc. have to provide services in China through joint ventures with local partners, and lag Alibaba Cloud in the nation, despite strong market share elsewhere. Alibaba controls 40% of the market, while Microsoft, the biggest foreign cloud provider in the Asian nation, has 5%, IDC data shows.
Tencent, which runs WeChat, China's largest social messaging platform with 889 million monthly active users, said it is increasing the number of data centers world-wide as demand for cloud services from the online gaming, internet finance and other web-related industries grows. The Shenzhen-based company said it would also open four other centers in Frankfurt, Moscow, Mumbai and Seoul, and has plans to expand its Silicon Valley center.
As more information and personal data is stored in the cloud, there is a heightened concern among lawmakers about the security of that data.
Chinese cloud companies will increasingly face security concerns from governments when they seek to expand further overseas, said Daniel Liu, a research analyst at Canalys in Shanghai.
Companies like Tencent and Alibaba can ease those concerns in new markets through partnerships with local firms, he said, citing a tie-up between Alibaba and SoftBank Group Corp. in Japan. "Outside of China remains a challenged market for Chinese cloud players," he said.
Dan Strumpf contributed to this article
Write to Liza Lin at Liza.Lin@wsj.com
(END) Dow Jones Newswires
April 26, 2017 07:29 ET (11:29 GMT)