Brief Analysis of the Development of China's IDC Market in 2021

　　With the continuous advancement of the national new infrastructure policy, the digital economy is playing an increasingly important role in national economic development. Emerging technologies such as artificial intelligence, the Internet of Things, industrial internet, and blockchain have become the core drivers of the next industrial revolution. Data centers, as key carriers of digital technology integration and application and the development of the digital economy, have entered a new development stage.

　 This article will briefly analyze the development of China's IDC market over the past year from aspects such as market growth drivers, policy impact on the industry, and market characteristics and trends.

　　I. The market size of China's traditional IDC business is growing rapidly, with public cloud and consumer internet being the main driving forces of development.

　　In 2021, the market size of China's traditional IDC business reached 120.19 billion yuan, a year-on-year increase of 20.9%, maintaining a rapid growth trend. It is expected that in the next three years, the market size of China's traditional IDC business will continue to grow at a rate of 18.8%, reaching 201.34 billion yuan by 2024.

　　Currently, the growth of China's traditional IDC market is mainly driven by the growth of consumer internet and public cloud businesses. In the future, with the maturity of the 5G ecosystem and the integration of emerging technologies into vertical industries, the development of industrial internet will become the main driving force for the growth of the data center industry.

　　For a long time, the growth of consumer internet and public cloud businesses has generated a large amount of data processing needs, driving the rapid development of the data center industry. In consumer internet businesses, mobile internet applications such as e-commerce, games, and videos generate a large amount of data processing needs. Especially in the early stages of development, the average annual growth rate of mobile internet access traffic exceeded 140%, promoting the rapid development of the data center industry; in recent years, the demographic dividend of mobile internet business development has gradually disappeared, and the growth rate of access traffic has slowed down. At this stage, public cloud technology has gradually matured and been promoted, changing the IT deployment methods of enterprises. A large number of scattered data center needs have converged to public cloud vendors. Cloud vendors are actively expanding available zones and reserving resources, accounting for more than 80% of market procurement; at the same time, the emergence of some innovative consumer internet businesses, such as ByteDance and Kuaishou, regional deployment enterprises are gradually seeking new deployment areas nationwide, which has also become an important driving force for the current industrial development.

　　In the future, with the acceleration of 5G construction, the maturity of AI and other digital technologies, and the rise of the digital economy to a national strategy, the deep integration of digital technology and vertical industries, and the gradual maturity of application scenarios such as smart cities, fintech, intelligent manufacturing, and smart education will trigger an explosive growth in data volume. However, the vertical application of emerging technologies in traditional industries such as manufacturing, finance, and healthcare still requires a long incubation period and will be applied to the C-end first, such as cloud games, 4K/8K video, VR/AR, and other related fields.

　 　II. "New infrastructure," "dual carbon," and "east-to-west data transfer" policies guide the healthy and benign development of the data center industry.

　　In recent years, the state has intensively introduced relevant policies to regulate the development of the data center industry, among which the "new infrastructure," "dual carbon," and "east-to-west data transfer" policies are the main policy orientations and will have a significant impact on industrial development.

　　The "new infrastructure" policy supports the development of the digital economy and drives the growth of the data center industry as a digital infrastructure. At the same time, it proposes to accelerate the construction of data centers, which is beneficial to industrial development.

　　The "new infrastructure" policy clearly proposes to accelerate the construction of new data center infrastructure, guide the reasonable layout of the industry, and promote the high-quality development of the data center industry in an intensive and green manner; at the same time, it supports the development of emerging technologies such as 5G and AI, promotes the application of new technologies in traditional fields, generates new data, and drives the development of data centers. After the introduction of the "new infrastructure" policy, the enthusiasm of the industry has increased, attracting a large number of cross-border enterprises and investors to enter the market; within the industry, leading data center enterprises are actively expanding resources and improving market share through "self-construction + mergers and acquisitions." Driven by the "new infrastructure" policy, a large number of planned construction projects have emerged in the market. In the Beijing-Tianjin-Hebei region, Shanghai, and surrounding areas alone, the planned construction of data center cabinets has reached one million.

　　Under the national "dual carbon" policy, data centers, as a high-energy-consuming industry, need to achieve carbon neutrality by 2030, and the task of green transformation of data centers is urgent.

　　The government has intensively introduced green development policies, implemented and refined the supervision of energy consumption. In addition to proposing lower PUE limits, it has included energy consumption monitoring in the scope of daily work. Currently, Beijing, Shanghai, and other places are actively building and promoting online real-time monitoring platforms for data center energy efficiency, requiring data center machine room energy consumption real-time monitoring data to be connected to the platform. Beijing is implementing a differentiated electricity price policy, levying higher-than-average electricity prices on data centers with higher PUE levels, and promoting the transformation and upgrading of data centers that do not meet energy consumption standards and have low green levels. In addition, major regional markets have launched special actions to investigate energy efficiency evaluations, strictly implemented the energy-saving review mechanism for data center projects, and conducted inspections and rectifications of problems such as the absence of energy efficiency evaluations or small-scale energy efficiency evaluations. With the continuous advancement of the dual carbon policy, energy consumption control and green upgrading of data centers will be a long-term task.

　　All parties in the market are actively exploring the path of green development for data centers. Relevant government departments provide more possibilities for the green transformation of data centers at the policy level, promote the construction of carbon trading markets, conduct green electricity trading, guide data center projects to land in areas rich in clean energy and renewable energy, and encourage enterprises to issue data center carbon emission reduction roadmaps, etc.; data center service providers actively apply energy-saving technologies, purchase green electricity, and try to use renewable energy, participate in relevant technological research and development, such as GDS Holdings signed a green electricity cooperation framework agreement with China General Nuclear Power Group in 2021, planning to purchase green electricity from it within the next 10 years, with a total purchase of no less than 2 billion kilowatt-hours. Alibaba, Tencent, Baidu, and other leading internet companies have launched carbon emission reduction roadmaps and practiced carbon neutrality strategies, which will further promote the carbon neutrality of the entire industry.

　　The "east-to-west data transfer" project has been implemented, focusing on future computing power construction and coordinating the regional layout of the industry, which will redefine the development of the data center industry and profoundly affect the functional positioning and regional pattern of data centers.

　　The "east-to-west data transfer" project requires promoting the tiered layout of data centers from east to west: eastern hubs are mainly positioned to serve nodes with large user scales and strong application needs; western hubs are committed to building national-level non-real-time computing power guarantee bases. At present, China has nearly 3 million data center cabinets, with about 70% of resources supporting C-end consumer internet businesses, and limited computing resources supporting the development of emerging fields. The "east-to-west data transfer" project builds computing power highlands in major regions across the country, providing computing power support nationwide, and reserving underlying resources for the development of emerging fields and the growth of B-end data volume.

　　In addition, the "east-to-west data transfer" will directly affect the industrial layout of data centers. Affected by the network resource limitations of data center development and the industry attribute of "supply according to demand," the development of the data center industry has obvious regional agglomeration characteristics, and it has been developed first in core cities with high population density, high industrial agglomeration, and more developed economies. At present, about 70% of China's data center resources are concentrated in the eastern region represented by Beijing, Shanghai, Guangzhou, and Shenzhen, followed by the relatively developed central China and Sichuan-Chongqing regions, and the western region has relatively few data center resources. With the rapid development of the data center industry, the problems of unbalanced and uncoordinated industrial layout have become prominent, such as limited supporting resource supply in the eastern region, slowing market growth, and limited computing power that can be supported; there are significant differences between the existing layout of data centers and data security requirements and energy distribution.

　　Based on the current industrial layout, the "east-to-west data transfer" policy coordinates national industrial development, guides data centers to land in "eight major nodes and ten major cluster areas," and proposes a series of encouraging policy measures such as tax incentives and loan support. In the short term, the western industrial ecosystem is still under construction, and market computing power demand has not yet exploded. Market growth will still be concentrated in core areas such as Beijing, Shanghai, Guangzhou, and Shenzhen, and nearby clusters; it is expected that by 2025, major hub areas will basically complete industrial environment construction, and the integration and application of emerging technologies will develop, and the industrial development pattern of "east-to-west data transfer" will basically be formed.

　　 III. Supply and demand contradictions emerge, market consolidation accelerates, and the Chinese IDC market gradually moves towards maturity

　　Overall, the Chinese IDC market is in a stage of transition from rapid growth to maturity, with supply and demand contradictions emerging and market consolidation accelerating.

　　Public cloud and internet applications are the main sources of demand for the Chinese IDC industry, consuming more than 80% of cabinet resources, but the growth rate of demand has slowed down in recent years.

In recent years, the average price of IDC cabinets in China has decreased to some extent, especially between 2020 and 2021, with prices falling significantly in some regions, showing characteristics of a buyer's market.

　　Data center cabinet prices are affected by costs, supply and demand relationships, and the competitive environment: From a cost perspective, data center cabinet costs include both construction and operation. Data center construction technology is becoming mature, and costs are basically stable. Some service providers are promoting refined operations, and data center operating costs have also decreased slightly. From the perspective of supply and demand, the overall market's potential supply is rapidly increasing, while the growth rate of demand is slowing down. In some regions, the supply and demand relationship of market cabinets is temporarily imbalanced, and buyers have increased their say in market transactions. From the perspective of competition, the increase in potential supply is intensifying market competition, especially as some service providers are adopting low-price strategies to compete for large customers, which is the main reason for the significant price drop in some regions in the past two years.

　　High-quality market resources are concentrated in leading data center service providers, and the industry is tending towards integration. Market integration development is reflected in the concentration of capital flows and the flow of high-quality projects to leading service providers.

　　Capital inflows provide financial support for the development of data center enterprises. Since the new infrastructure construction, investors have closely focused on the Chinese data center field, and the number and total amount of investment activities have significantly increased. Considering capital security and return space, investors tend to choose leading data center enterprises with higher existing market share and abundant data center reserve resources. From the actual market situation, private equity funds and other investment institutions focus on leading enterprises such as GDS and 21Vianet, which have both current advantages and future development potential. In large-scale investment and financing events in the Chinese IDC field, 37% of investment and financing activities occurred in leading enterprises; in 34% of investment and financing events, investment institutions chose data center enterprises such as Puhua Data, Haoyun Network, and Haoyang Data, which have future development potential.

　　In the future, the Chinese IDC industry will maintain stable growth for a long time. It is expected that after 2024, with the maturity of emerging technologies such as 5G and AI, and the gradual formation of the industrial internet ecosystem, the rapid increase in data volume is expected to drive the IDC industry into a new round of growth cycle. From the perspective of industrial operation, with the implementation of government regulatory policies, a more standardized and reasonable industrial operation mechanism, and the promotion of refined operations by all parties in the industrial chain, the future industrial development will be healthier, more efficient, and more sustainable.

　　Source: Kezhi Consulting

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