Alibaba Cloud snagged more than a third of China's 2021 cloud spend — a figure that grew 45% last year to $27.4 billion — while Huawei Cloud and Tencent Cloud trailed behind, Canalys reports.

The market's overall growth results from pandemic-related consumption drivers like remote working and learning, e-commerce, and an accelerated digital transformation that has upped the demand for cloud services. Canalys anticipates this growth will continue and China's cloud infrastructure market will reach $85 billion by 2026.

Market leader Alibaba holds the top spot with 37% market share, though that's a decrease from its share of the market in 2020. Canalys attributes this decline to policy regulation that slowed the growth of internet-based customers. However, the cloud provider grew 30% in 2021 as a result of long-term customer commitments and its expansion into traditional industries.

Even though government support of digital transformation has sped up cloud adoption in traditional industries, those customers are still limited in their ability to manage and develop cloud tech, analysts wrote.

"In addition to technical performance and data security, cloud vendors need to focus more on how to reduce the learning time and management costs of enterprises," Canalys analyst Yi Zhang said. "Tapping into new business value for traditional enterprises through cloud services is also critical to the future of the industry."

Huawei Nabs No. 2 Despite Lack of 'Internet Genes'

No. 2 cloud provider Huawei's market share hit 18% in 2021, representing 67% annual growth, and widening the gap between it and rival  Tencent.

Huawei's specialty industry experience in government affairs helped it maintain a leadership position, despite being the only non-internet company in Canalys' top three vendors.

What's more, Huawei's cloud-to-cloud collaboration strategy positions the vendor as a key partner across China's internet sector, and it's helped Huawei win key customers and compensate for its "lack of internet genes that its direct competitors can claim," Canalys reported.

Tencent Eyes Metaverse, Baidu AI Falls in No. 4

Tencent Cloud grabbed the No. 3 spot with 16% market share in 2021. The provider grew 55% year over year by expanding its customer base to incorporate traditional sectors, like government, the report found.

And analysts argue the metaverse could drive additional business for Tencent, based on its history with gaming, social media, and digital commerce.

Meanwhile, Baidu AI Cloud claimed the No. 3 spot with 9% market share, but at a similar pace to its larger rivals, the report found.

Baidu was less impacted by government regulations in the past year because of its focus on online marketing and AI, the report's authors wrote. The provider combines cloud infrastructure and AI to focus on intelligent services as a way of differentiation.

The provider also has its sights on the industrial segment where it's seen some success with industrial internet, smart manufacturing, energy, and utilities.

Trust is the Competitive Edge

Enterprise cloud migrations are "continuing at pace and [have] created a massive opportunity for cloud service providers,” Canalys analyst Blake Murray said.

But transitioning legacy enterprises to the cloud makes for complex, long term projects that require technical expertise and professional experience in various industry verticals, something that's easier said than done, he explained.