High-density Hangzhou: The Chinese city's datacenter market caters to cloud

Near Shanghai, historical Hangzhou is one of China's most prosperous, well-connected and technology-focused cities. The home of e-commerce and cloud giant Alibaba, the metropolis has seen a datacenter industry recently emerge within its boundaries that is wholly committed to appealing to those needing high-density computing environments. Not only does Hangzhou boast some of the highest power utilization rates in all of China, it also hosts a relatively developed wholesale market – a key indicator of a datacenter location's maturity. No foreign global providers have entered the landscape yet, and local operators do not seem worried about attracting a more traditional base of financial services and international enterprise clients.

The 451 Take

There's an ongoing debate about the ideal proximity of a facility to the closest major city center. Closeness yields high network density, low latency and ease of doing business, among other factors, while distance brings mitigated capital costs and security assurances. In China, the significance of these elements is magnified by external considerations, including environmental and licensing rules, as well as the uneven distribution of connectivity infrastructure and skilled personnel. Some believe that these conditions create 'sweet spots,' destinations that enjoy the benefits of both immediacy and remoteness, without experiencing the pitfalls of either. If there are datacenter sweet spots in China, Hangzhou is one of them. The city lies firmly within Shanghai's sizable orbit, profiting off of its radiant energy while not suffering from its exorbitant prices and stringent regulations. Hangzhou also has its own thriving economy and inviting business landscape, made clear by the emergence of Alibaba and other large-scale local enterprises. Local providers have been fully aware of the city's potential for several years, and have invested money and effort accordingly. Hangzhou, with high utilization rates and consistent wholesale building, is now one of the most mature markets in China. The question is whether the city can attract the attention of some of the world's biggest firms and see its customer base diversify. That will determine whether it can break into the country's highly exclusive group of premier datacenter destinations.

The place Alibaba calls home
The Yangtze River delta, where the world's third-longest river flows into the East China Sea, is one of China's most fertile regions. Since at least the Middle Ages, it has served as the primary 'rice basket' feeding the largest country in the world. As such, these lands have reaped the enormous benefits of this immense agricultural activity, with one of the wealthiest and most densely packed populations in China. More recently, international trade has further boosted the Yangtze River delta and led to the rapid rise of some of the world's biggest and most vibrant cities, including Shanghai. Just over 100 miles to the southeast of that metropolis is one of the region's more historic capitals, Hangzhou. The southern end of imperial China's central manmade waterway, the Grand Canal, this city is also famous for its prosperity and natural beauty, particularly the centrally located West Lake. These notable features have drawn thousands of tourists and aspiring merchants each year for centuries, and now more than nine million people call Hangzhou home.

Over the last few years, as the internet has transformed the Chinese economy, Hangzhou has emerged as one of this broader national trend's true epicenters. With lower real estate prices than nearby Shanghai, the city boasts a vibrant startup culture, as well as excellent network connectivity. The jewel in Hangzhou's digital crown, however, must be e-commerce giant Alibaba, one of China's largest IT firms, which is headquartered in the city. Alibaba, now the country's biggest domestic cloud provider, is also a member of BAT, which refers to Baidu, the search company based in Beijing; Alibaba; and Tencent, the behemoth behind popular messaging application WeChat, from Shenzhen, which some call the Silicon Valley of China.

Recent activity and more to come
China's incumbent datacenter providers have invested heavily in the Hangzhou market in recent years. The country's three largest operators, state-owned China Telecom, China Unicom and China Mobile, referred to collectively in the local industry as the Big Three, are all present. China Telecom, historically dominant in southern China, including Hangzhou, originally launched its colocation services from the city back in 2001. The carrier now leverages seven facilities there, including one, finished in 2012, that maintains over 107,000 square feet of operational space – enough to hold about 2,500 racks. China Telecom's Hangzhou network operations center is located within the site, which utilizes 20MW of power. In the building, the provider also offers some managed services, particularly for security.

Recognizing the growing significance of the Hangzhou area to China's overall digital infrastructure, China Telecom has continued to up its game in the city. The company has formed a strategic partnership with local wholesale provider Shanghai @hub, which just went public on the Shanghai Stock Exchange earlier this year. The initiative will see the two firms team up to complete three more datacenters in Hangzhou this year, each with the capacity to host 2,000 racks. The Chinese market has seen a recent uptick in wholesale players, a circumstance most keenly observed in places like Hangzhou. On its own, China Telecom plans to open a new facility in the neighboring city of Jiande.

The Hangzhou datacenter industry is not merely confined to state-owned operations – members of China's growing crop of private providers have also entered the fray. Beijing company 21Vianet Group opened its own facility, which is the same size and uses the same amount of power as China Telecom's 2012 building, in the city in 2014. The newer datacenter was built as part of a partnership, similar to China Telecom's with @hub, whereby China Unicom provides the bandwidth. 21Vianet offers a more comprehensive set of managed services, however, as well as cold aisle containment, and the company even harbors plans to build another, bigger datacenter in Hangzhou by the end of 2018. 21Vianet leverages its own cloud service in the city, but not its well-known international cloud partnerships, such as the one with Microsoft Azure.

Building for the beast
The emergence of Hangzhou as a hotbed for the Chinese IT industry is evidenced by the customer base in the city's datacenters. China Telecom reports that 80% of its Hangzhou clients come from the technology sector, including each member of BAT and a host of smaller gaming and content firms. The company offers its services to local financial services firms, but these only have deployments of 50-100 racks each, while the former type of company typically leases enough space for at least a thousand racks. Some national banks use Hangzhou as a disaster recovery (DR) site for their Shanghai operations; these choose the location primarily for its relative price, but China Telecom's 2012 datacenter ran out of space a year after it opened. The carrier does not have very many international customers in Hangzhou, but hopes to win more in the coming years, especially as the Shanghai authorities continue to step up restrictions for greenfield building due to power and environmental concerns.

Together, BAT make up a significant portion of the overall leased space in the Chinese datacenter market, and Alibaba makes its presence in Hangzhou known in a number of ways. First, the company houses as many as 4,000 racks in China Telecom facilities, just in Hangzhou, and shows no sign of wanting to build its own facilities anytime soon. Alibaba also leases the entirety of the 21Vianet datacenter, out of which it offers backup services for its signature cloud product, Aliyun, to local IT enterprises. Alibaba, with its necessity for high-density environments, has also shaped the nature of the market in Hangzhou, as opposed to just its size. China Telecom's average utilization is 5kW per rack – far higher than the national average of about 3kW per rack, and the provider even boasts a 15kW-per-rack offering. The firm's gaming customers, at 7-8kW per rack, use even more energy, while 21Vianet's racks maintain the same rate and offer up to 8kW per rack (although they will soon increase the maximum level to 16kW per rack). The @hub-partnered facilities will only allow deployments of 500 racks and above.

Despite providers' remarks that they hope to serve a more diverse set of customers in the future, including financial services firms and smaller e-commerce companies, their expansion plans betray a narrower focus – to serve Alibaba. China Telecom has built out office space in its 2012 datacenter dedicated to the company, and the new @hub facilities will only allow for deployments of 500 racks or more. Both providers indicate that they will not focus much effort developing more enhanced managed services portfolios in Hangzhou, even though they are in other parts of China, because the city's customer base, as in Alibaba, prefers to keep certain functionalities in-house, and always will. 21Vianet, which even built its datacenter in Hangzhou's tariff-free economic area, does not intend to tailor its products for international clients, the potential benefactors of tariff-free imports, anytime soon.

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