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Beijing Sinnet says it will buy Amazon Web Services’ China business (wsj.com)
135 points by Bockit 11 months ago | hide | past | web | favorite | 61 comments

"No, AWS did not sell its business in China and remains fully committed to ensuring Chinese customers continue to receive AWS’s industry leading cloud services. Chinese law forbids non-Chinese companies from owning or operating certain technology for the provision of cloud services. As a result, in order to comply with Chinese law, AWS sold certain physical infrastructure assets to Sinnet, its longtime Chinese partner and AWS seller-of-record for its AWS China (Beijing) Region. AWS continues to own the intellectual property for AWS Services worldwide. ‎We’re excited about the significant business we have in China and its growth potential over the next number of years."


The longer the press release and/or the more legalese, the worse the story or in this case, withdrawal from a previous market. Positive, constructive press releases are very short by comparison.

Two things I take away from this.

1. Amazon decided that the risk of doing business in China (handing over information & know-how to the government, helping it suppress the human rights of its citizens, etc) was not worth the revenue that it would make.

2. It sold for $300 million. That means its run-rate was probably only $50 million a year or so annually (or maybe less). That's not very much at all, given that AWS' annual global business is about $10 billion and rising (so China's cloud share accounted for less than 0.5% of AWS global cloud business.)

Number 1 is especially key, last 2 years US businesses have pulled out of China a lot because of really really sketch actions by the Chinese government. Doesn't hurt to use the totalitarian argument either, but mainly they are losing money. Goldman Sachs, Citigroup sold their stakes last year as well.

China will likely start opening up more because Western companies aren't as naive anymore and short term profits for long term losses aren't much of an option anymore now that Chinese companies are well developed in all the tech and economies of scale.

I mean, the game they play is really hard to fight against. It usually goes something like this:

* Attract western businesses to make investments based on various capital incentives. You are a free market, after all.

* Once they are established and comfortable, start imposing restrictions, stealing IP and undercutting foreign companies. Make life increasingly difficult, except for those companies which you really need to stay in the country (Apple etc).

* Eventually drive out foreign business because some domestic company has stolen the tech, gotten the market share and is willing to play back with the govt

Why play that game? You can't win. Why anyone invests anything other than manufacturing in China is beyond me.

If your entire product can be stolen via a USB drive (source code, proprietary manufacturing processes, IP in general) stay far, far away from Chinese businesses or China. They are playing to win in a very serious way.

> Why play that game? You can't win.

1 billion people to buy your stuff is pretty tempting!!! If you are a CEO with 10 million shares of stock in BigCo.. and profits are going up like 1% a year.. why not roll the dice with China? If it works for a year, you make a bunch of money and cash out. If not, you don't "lose" anything.

Yeah, the CEOs who enter the Chinese market are long gone when the company pulls back.

I remember a conversation I had in the late 1990s with the owner of an Indian textiles company (father of a friend). He said Western companies investing in China were idiotic. He was upset because Chinese mills were selling textiles for cheaper than the raw inputs. His point was that anybody who thinks they can "compete" in such a market is stupid. The Chinese government (buoyed by dumb Western money) can support their producers for longer than any non-Chinese company can stay solvent. That will remain true for the foreseeable future.

The only winning strategy is to use this state of affairs to your advantage, which mostly means exploiting Chinese labour and investments to bolster your position in foreign markets. But trying to compete directly in the Chinese market is just dumb. The government isn't stupid. Long-term they know that they'll need every penny of their consumer market to prevent the financial collapse of their producers. And even if the collapse comes, that makes it all the more important to capture that value.

Better to wait it out until the Chinese market matures. You'll end up no worse than someone who entered prematurely, and probably better off.

> China will likely start opening up more because Western companies aren't as naive anymore and short term profits for long term losses aren't much of an option anymore now that Chinese companies are well developed in all the tech and economies of scale.

Or: China will build local champions who can grow inside a protected region and then, once they have their playbook down and anfat balance sheet, they can go out and buy market share in other regions.

Without having to deal with international competition, it’s doubtful the local champions can do much outside of the mainland. It’s like how wechat is the biggest thing inside china, but also missing everywhere abroad outside of the Chinese tourist sector.

Then again, Huwai may only be the tip of the iceberg.

The sketchy actions are usually a 2-step formula:

1) force foreign companies to "partner" with local Chinese companies. This leads to the joint ventures using backdoors and surveillance against the users

2) Once the partnership is mature enough, the local partners can steal the technology and know-how of the foreigners, and then start competing with them. And because they are local Chinese companies, Chinese customers tend to prefer them, too, to the detriment of the foreign companies.

This strategy seems to have worked rather well against pretty much anything except super-entrenched foreign products, like say Windows (which is mostly pirated in China anyway, but without that piracy, Windows would have been relegated to a niche OS a long time ago in China).

Even Intel is getting kicked out of China, slowly but surely, as Chinese companies start doing both chip design and chip manufacturing. It didn't help that the U.S. government also recently banned Intel from selling server chips to China in supercomputer contracts because China was doing "nuclear testing" on those supercomputers (Say what? That sounds like a BS reason the Obama administration used to cover-up for something else, but anyways, it still hurts Intel and other American chip companies).

What worries me most is not just that those local Chinese companies are starting to bring in billions and billions of dollars every year, which allows them to expand globally (backdoors and all) and acquire foreign companies from abroad, too, but also that Chinese tech is starting to be preferred by foreign companies (again, with backdoors and all).

Take for instance Baidu's "self-driving platform", Apollo. Volvo is going to adopt that in its self-driving cars, and there are other carmakers that are considering the same, too. Are you FREAKING KIDDING me? They want to build millions and millions of Chinese self-driving cars over which you'll have no control with Chinese backdoors in them? What could possible go wrong?!

I mean I'm sure the NSA will try the same in the U.S. with "lawful intercepts" and whatnot, but I doubt most will accept it and I think those that do will pay the price for it. But the Chinese backdoors are pretty much a certainty.

And yes, I know, Baidu's platform is "open source", but first off, I don't think 100% of it will be open source. They might release certain add-ons that the carmakers will want that aren't open source and public.

And second, if the Chinese spy agencies are anywhere near as smart as the NSA, the backdoors they will put there will look like some "dumb mistake" a programmer made a long time ago. It will be discovered 5 years later, patched as a regular bug, and things will go on as usual (with 3 other backdoors/intentional vulnerabilities thrown into the code).

> Take for instance Baidu's "self-driving platform", Apollo. Volvo is going to adopt that in its self-driving cars

I couldn't find any reference to that on the web?

nor I, but they do have an impressive list of partners here: http://apollo.auto/index.html

> China will likely start opening up more ...

Let's not forget that there is an international trend to close down more (to use the same metaphor), including the U.S. and U.K. China could follow that trend too, and certainly the progress of free trade no longer can be assumed.

The President of the U.S. just gave an unprecedented speech at the Asian summit, criticizing institutions of rules-based, cooperative international trade expansion, criticizing trade partners, and arguing in favor of every nation adopting his isolationist, nationalist approach. (China's president followed with a speech favoring international trade cooperation.)

Trump's an awful, undiplomatic speaker, but that seems like a wilful mischaracterisation of his position. His complaint is exactly that America has opened up its economy to others in Asia, but that they haven't reciprocated. Whether or not his isolationist threats makes any sense, it's absolutely true that some countries, China most of all, have limited access to their own markets while taking full advantage of open markets elsewhere.

Xi Jinping may know the correct platitudes about free trade to mouth to please an audience, but his vision of trade cooperation has little to do with genuine openness, and everything to do with cementing Chinese economic and political hegemony.

> a wilful mischaracterisation of his position

Perhaps you could present some evidence?

I paraphrased what he said accurately; 'he misspoke' is baseless and an insufficient explanation. His policy is America First, a term that purposely revived from nativists and isolationists of an earlier era. The President and his administration has advocated it over and over, in multiple forums. His national security advisor and (secretary of state or another high official) wrote an editorial asserting that there is no "community of nations", and that the U.S. will serve itself without significant regard to others' interests. They've also asserted, repeatedly, that the U.S. has no interest in democracy or the rights of others.

The parent's claims regarding Xi's speech are also baseless. Like Xi's predecessors and peers the world over for generations, Trump being the notable exception, he appears to understand that all benefit from the free trade regime and that the powerful nations, including China and the U.S., benefit most.

In contrast, look at what these countries do rather than what their leaders say.

American markets are actually open. Americans can invest their money anywhere. Foreigners can buy property and own companies with few restrictions.

China discourages imports by punitively taxing them. Chinese face strict capital controls. Foreigners and their businesses are heavily restricted in what they can buy and what activities they can engage in.

Really in that case when I see prospectuses for floats in the UK they explicitly ban Americans (due to silly IRS rules I belive)

The float of the royal mail is one example retail investors in the USA where locked out

That's true, FATCA has created a situation where Americans are effectively locked out of foreign banks. It sucks, especially for Americans living abroad and business people trying to establish themselves internationally, however it's not the same thing as capital controls. Americans can invest anywhere that will accept their money without their own government shutting them down.

> American markets are actually open. ...

Trump just took office in January; it will take awhile to redirect the massive ship of state. So far he's pulled out of TPP, may pull out of NAFTA, may pull out of the S. Korea trade deal ...

> It sold for $300 million. That means its run-rate was probably ...

Perhaps the price was based, to a degree, not on financials but on politics. Someone I know told me the story of working for a major international telco in South America, when the host country decided to nationalize their local phone service. The nation's government provided a check for $1 million (IIRC), far below the value of the business, but of course the company took the check without argument.

I have no idea what happened with AWS in China. When corrupt politics intersects with business, it perverts the market and rule of law - something those doing business in the U.S. should keep in mind too.

Interesting speculation however if you had bothered to read the article you would realize it's completely false.

AWS did $4.58 billion this latest quarter. They're tracking to a $20+ billion annualized run-rate.

Thanks for that info! That means AWS's China business accounted for less than 0.25% of its global business (based on sale price.)

They never get the chance to expand in China. Most of the time it operates in China, AWS phrases it as 'in preview', that significantly disencharges user adoption, because it is significantly more complicated to go through the registration process that is required by the CCP

The only thing I take away from this is business as usual in China...

This sort of sale/partnership occurs all the time with automakers since they're either not allowed to do business or subject to insane taxes and tariffs if they aren't majority Chinese.

For instance, Volkswagen in China is 50% owned by Shanghai Automotive Industry Corporation - a Chinese company.

I don't see any reason to run around and proclaim doom and gloom and the end of AWS as we know it or anything.

Amazon didnt decide anything, you simply CAN NOT do business in china(in selected sectors) without majority domestic ownership.

Unlike west globalization trends, China actually cares about its own interests first, not the interests of mega corp owners.

The government is responsible for all the citizens, but mega corp only responsible for its owner, isn't it?

I think WSJ misinterpreted this. Sounds like a bit of an ownership shift, but Sinnet will still pay AWS to operate the regions.

Yes. You know media, they like big title.

Sinnet only buy the Beijing equipments to make them a national assets for the regulation compliance. AWS China to open another region very soon in Ningxia, which not included in the deal.

Someone I know contacted their Amazon contacts about this. This is exactly what's happening. It's exactly like how 24vianet operates Office 365 on behalf of Microsoft inside China.

Does this deal include datacenter/HW designs? Software? Operational practices?

Seems like a pretty massive technology transfer.

Looks like they "bought" it but AMZN will license the technology to them so they'll still make some money. Apparently China doesn't want big tech to be non-Chinese in their country and doesn't seem to be hurting. They have their equivalent of everything

Right. Alibaba Cloud Service can pretty much hold on its own.

> The buyout was an attempt to “comply with our country’s laws and rules and further improve the security and the service quality of the AWS cloud-computing service operated by the company,” Beijing Sinnet said.

This was long time coming:


Though I wonder how are the acquiring companies funded? And if China can continue doing this long term.

Why couldn’t they? No/little international pressure to do otherwise and a currency printing press to subsidize back room deals.

This is a great strategy for China and it’s utterly insane that we allow this situation to continue.

> it’s utterly insane that we allow this situation to continue.

That is the point I am trying to make. How long before everyone says this is insane and tries to start blocking deals?

Though China's inflation due to currency printing press might come home to roost before that happens.

It's dumb greed. China dangles the prospect of a 1 billion+ consumer market in front of Western companies, and rational thinking ceases. The upside looks infinite.

I bet that Taiwanese, Japanese, and Singaporean corporations filter and structure their deals differently given that they have much deeper and historic ties to China, and are more familiar with long-term planning in the context of centralized political economies. Perhaps someone could confirm or dispute that.

If giving money for business development ever created inflation, the US would not have enough machines to cut the zeros from its currency. Please understand that creating money for productive purposes cannot generate inflation, this is essentially what banks have been doing since they were ever invented.

Adding money to the supply of money causes inflation regardless of the "productive purpose" for which it is used.

Banks add money to the money supply daily. Money that didn't exist before a loan is approved suddenly appears out of thin air, due to the fractional reserve system. Billions of dollars in loans are created every single day in this way, and even before they are paid, more is created. Where is the inflation? Instead, we live in a deflationary world. Countries, through their development banks do exactly the same. No inflation is created because of this, stop believing in what has been proven untrue.

Not necessarily disputing your point, but part of the reason that there's deflation (or at least lack of inflation) is because banks _aren't_ investing in production capacity. Corporate debt is at an all time high, yes, but AFAIU mostly because corporations are swapping current earnings for debt because in the current environment it's [presumably] marginally more efficient.

Capital investments largely are coming from equity markets, VC firms, etc. There's so much free cash floating around globally that there's little need to leverage fractional reserve banking. That's why banks so vociferously oppose margin controls--they're having to compete with all the cheap money.


Reports that #AWS is exiting its China business are completely wrong. Sinnet transaction is to meet Chinese regulatory requirements. #AWS remains committed to provide its service in China. - Werner Vogels

What a misleading title.Beijing Sinnet is just a shell company of amazon china(The same as Guxiang which is a shell company of google in china).

>Beijing Sinnet is just a shell company of amazon china

No. Look at their website http://en.sinnet.com.cn/home/default/index.html

北京光环 was founded in 1999 and run their own ISP and CDN. They are clearly not a 'just a shell company' and are a local partner.

It may be worth pointing out that AWS China supports about 10% of the services one may find in other AWS regions--and not even basic features like MFA for root or IAM accounts.

AWS China announced yesterday Lambda and API Gateway are available: https://www.amazonaws.cn/en/new/2017/. Interestingly these news are not published in the AWS dot com whats new page but they did tweet about it.

AWS continues to own the intellectual property for AWS Services worldwide

Mmmm, does China care about who owns the intellectual property? That's a first

Looks like AWS finally realized their security offerings like encryption at rest, KMSes, ACM etc were incompatible with China's datacenter laws. None of the AWS offerings would have any credibility if they all had backdoors even in one region. Think some of them can't even be backdoored.

These services are not available in the China region.

very interesting. I wonder what they are really transferring? Infrastructure only or software stack as well? Who is operating after the sell? I am involved in the IBM Wanda partnership that is currently occurring and am curious about other companies experiences in China.

Yet another company driven out of China by government-industry collusion.

It's the playbook. They need competition to drive improvement of their local blessed firm. Once they are globally competitive they can compete internationally and monopolize the China market.

This is going to sound so ironic regarding what we'll learn about Amazon in the future.

Looks like Bitcoin is the only "company" succeeding in China.

Disney will probably do ok with their new park, if only because it's only 43% owned by Disney.

Apple and Starbucks are among the few still thriving, for now. GM is also still doing ok there, via a typical partial ownership arrangement.

McDonald's and YUM! Brands threw in their towels, after initially having booming businesses.

Starbucks is also in a JV for tier one cities. They are pushing into second+ tier cities because the Chinese government is letting them do it outside a JV.

A somewhat misleading headline. Only the "Amazon Web Services' China business"

I guess Jeff Bezos still need to learn few things from Jack Ma. Would be cool to read the inside stories.

Like how to leverage the state to keep foreign competition out. Let's hope Bezos doesn't learn that lesson.

Keeping in mind that half of Jack Ma's wealth derives from one of the greatest thefts in world history, of Ant Financial from Alibaba shareholders (including Yahoo and Softbank). Equivalent to Bezos discharging AWS into his own private hands, without compensating Amazon shareholders. Let's also hope Jeff Bezos doesn't learn that trick.

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