China's public cloud service market will see rapid growth in the next three-four years, driven by rising demand for cost-effective IT solutions and greater flexibility, scalability, reliability and security of cloud services compared with traditional IT infrastructure, Fitch Ratings said in the latest report.

The cloud migration will also be helped by the need for employees to work remotely or in the office in the wake of COVID-19, and by China's "new infrastructure" economic stimulus this year, the report noted.

Competition in the public cloud service market will remain intense, but Chinese internet majors, including Baidu Inc., Alibaba Group and Tencent Holdings Limited, will continue to dominate the market due to their first-mover advantage, substantial financial resources, deep understanding and rich cloud use cases for a wide range of industries, according to the report.

The rating agency expects the cloud business to be an increasingly important driver of the longer-term credit strength of the Chinese internet majors, as the rapid market growth will boost their business profiles and increase revenue diversity.

However, cloud services are unlikely to improve the companies' financial profiles in the short term as stiffer competition and higher capital expenditure for expansion will restrain cash generation from their cloud businesses until pricing discipline returns.

"Nevertheless, longer-term profitability and cash generation should be rewarding," the report added.

(Cover image via VCG)