Amazon Web Services (AWS), in compliance with China’s stringent data security laws, this week confirmed that it will sell a portion of its cloud infrastructure to Beijing Sinnet Technology.
Sinnet, a long-standing AWS reseller partner will purchase “certain physical infrastructure assets” from AWS in a deal worth more than $301 million, according to a Reuters report late on Monday citing a Sinnet regulatory filing.
AWS described the move as a compliance effort with China’s new cybersecurity laws. These laws severely limit the ability of non Chinese cloud vendors to provide services to Chinese residents and businesses.
This deal is also a significant step forward in AWS’ relationship to Sinnet. Since last year, Sinnet has been the sole owner of AWS’ Beijing region. This is the first and (sofar) only AWS region located in China. AWS’ primary provider for Beijing was Sinnet in August 2016. AWS played a more back-end role.
AWS stated in a FAQ that AWS Cloud services will be provided from the Beijing Region starting 1 August 2016. AWS will continue to provide technology, guidance and expertise to Sinnet. This new operating model will be applicable to all existing customers as well as new customers in the Beijing Region. The new operating model will see Sinnet enter into a customer agreement with customers, issue bills, fapiaos [transaction record], and receive payment for AWS Services.
Other reports suggested that AWS was leaving the Chinese cloud computing market entirely after the news of the sale to Sinnet of AWS assets quickly spread. AWS issued a statement to media refuting those reports. It stated that it will retain intellectual property of the assets and that the sale was due to changes in Chinese regulations.
AWS has not sold its business in China. AWS remains committed to ensuring that Chinese customers continue to get AWS’s top-of-the-line cloud services. Chinese law prohibits non-Chinese companies owning or operating certain technology to provide cloud services. AWS sold certain infrastructure assets to Sinnet, its long-standing Chinese partner and AWS seller of record for its AWS China Region (Beijing). AWS retains the intellectual property for AWS Services around the world. We are excited about the substantial business we have in China, and its potential growth over the next few years.
AWS’s only operational region in China at the moment is Beijing. However, AWS has stated that it plans to open another region in China, in Ningxia, in the next year. AWS did not provide any information about how or whether the sale of Sinnet would affect this second area.
China has been enforcing cybersecurity legislation since June. It imposes strict rules on where corporations can store digital data about Chinese citizens and entities. If China requests access to the data, the new laws require that corporations comply with Chinese authorities. Regulators will require that businesses in “critical” industries undergo IT system checks to ensure compliance.
As other markets look at tighter restrictions on how data is stored and accessed on citizens, the new Chinese regulations are also being considered. This is especially true when service providers who collect that data are located overseas. The European Union will likely begin to enforce its revamped cybersecurity laws (the General Data Protection Regulation (GDPR)) in May 2018. This will prompt cloud providers such as AWS and Microsoft Azure, to update their policies to comply with the new requirements.
Industry watchers predict that hyperscale cloud platforms such as AWS will become more common as regional cybersecurity laws become more strict.
