Tencent, China’s tech giant, revealed it will invest US$70 billion in ‘new infrastructure’ over the next five years in the race for tech domination.
The world’s largest online gaming company plans to spend on cloud computing, big data centers and cybersecurity to compete with the likes of Alibaba Cloud and Amazon.
Tencent joins China’s ‘new infrastructure’ strategy to boost economy
Tencent’s announcement on Tuesday follows China’s ‘new infrastructure’ initiative to leverage on the country’s boom in demand for cloud services and upgrade digital infrastructures to enable growth.
The Senior Executive Vice President of Tencent, Dowson Tong, was quoted by Guangming Daily as saying: “Expediting the ‘new infrastructure’ strategy will help further cement virus containment success.”
China’s economy shrank by 6.8% in the first three months of 2020, ending almost 50 years of consistent growth.
Reuters reported Tencent’s investment will look to expand into business services, as consumer internet growth slows and companies shift number-crunching from their own computers to the cloud.
The WeChat creator’s shares grew by 2.5% after the investment announcement. This growth comes after Tencent saw a slower revenue increase of 22% in their FinTech and Business Services, including Tencent Cloud, in the first quarter of 2020 compared to 39% in Q4 2019.
Mr. Ma Huateng, the Chairman and CEO of Tencent, said: “So far, our businesses have proved resilient and cashflow-generative, enabling us to increase our investment to fulfill our mission of ‘Tech for Good’.”
Tencent’s online gaming revenue grew by 31% year-on-year to US$5.2 billion, and this may increase even more with Tencent’s move into cloud gaming.
Tencent takes on Alibaba Cloud
Tencent had 18% of China’s cloud market in the fourth quarter of 2019, grew by 111% globally and ranked as the third largest Infrastructure-as-a-service provider in Asia Pacific last year.
Tencent also became the first company with more than one million servers in China, the country with the second largest cloud market.
Alibaba Cloud commanded 46.4% of the Chinese market, making it not only the largest in China, but also the rest of Asia Pacific.
In a webcast, Daniel Zhang, Chairman and CEO of Alibaba Group, identified that the Software-as-a-Service market and wider ecosystem is more mature in the United States compared to countries like China where a developer ecosystem ‘is just starting to get going’.
The data intelligence backbone of Alibaba Group achieved a revenue growth of 58% year-over-year to US$1.7 billion in the first quarter of 2020.
Alibaba Cloud recently announced a US$30 million SME cloud adoption program along with US$28 billion worth of data center investments covering 21 regions, including Indonesia, Malaysia and Singapore to support digital transformation in a post-pandemic world.
Mr Zhang predicted the pandemic will further accelerate digital transformation of enterprises with industries like public sectors choosing to move to the cloud, despite concluding the fiscal year with a quarter impacted by the economic effects of the COVID-19 pandemic.
Tencent also expected to see accelerated cloud services and enterprise software adoption from offline industries and public sectors over the longer term.
Tencent’s US$70 billion investment will also focus on key sectors, including artificial intelligence, 5G networks, blockchain and Internet of Things operating systems.