, Inc. Sells Some Cloud Assets In China To Comply With Local Laws

Updated on, Inc. (NASDAQ:AMZN) is selling some of its cloud business in China to its Chinese partner Beijing Sinnet Technology Co. for approximately 2 billion Yuan (U.S.$301.2 million). The move comes amid strict rules over the online data, making it harder for technology firms to operate in the region. The sale, however, does not mean Amazon is exiting the second largest economy in the world.

AWS not exiting China

Amazon has made it clear that it is selling only “certain physical assets,” and retains the ownership of intellectual property for AWS (Amazon Web Services) worldwide. In a statement to TechCrunch, the online retail giant said it is not parting ways with its business in China, and will continue to offer the industry-leading cloud services to its customers in China.

“Chinese law forbids non-Chinese companies from owning or operating certain technology for the provision of cloud services,” the U.S. firm said. Thus, to comply with the Chinese law, it sold “certain physical infrastructure assets” to Sinnet, who has been operating the Amazon services since August 2016.

In a regulatory filing on Monday, Sinnet said the purchase would help it to “comply with China’s laws to further improve the company’s AWS cloud services” in terms of quality and security. This year in August, Sinnet told customers that it would shut down the VPNs and other services on its networks that helped users to get over China’s Great Firewall. Sinnet stated that it is doing so under direct instructions from the government.

Charlie Dai, a Beijing-based analyst at Forrester Research, feels that the move was necessary for AWS to improve its other business areas in the market. AWS runs a separate hardware venture in collaboration with the Ningxia provincial government in China’s northwest, according to Reuters.

China unfair to foreign firms

AWS came to China in 2014. The service has outperformed its competitors throughout the world with a market share of over 40% globally in 2016, much more than Microsoft and Alibaba, according to Gartner. However, the Chinese landscape is different, dominated mainly by local tech giants such as Alibaba and Tencent. In China, regulations require Amazon to operate via a local partner before offering the services to customers.

Amazon’s decision casts a shadow over similar ventures in the country. Foreign firms have repeatedly complained about the biased regulations in China that favor the local companies. Some U.S.-based trade groups say that China has repeatedly lent deaf ears to requests by U.S. firms on giving access to Chinese markets, such as the Chinese firms get in the U.S. However, the Trump administration has hardly done anything to address the issue.

Speaking to SiliconANGLE in July, Robert Atkinson, president of the Information Technology & Innovation Foundation said, “It’s not a negotiation, or at least it shouldn’t be. The Chinese government is blatantly flaunting the rules of trade, including but not limited to their completely unreasonable rules on cloud computing.”

On Monday, Amazon shares closed up 0.34% at $1,129.17. Year to date, the stock is up almost 51%, while in the last three months, it is up almost 17%.

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