Internet data center fund set to boost IT industry

Japanese trading company Itochu and Chinese conglomerate CITIC Group will jointly launch a fund investing in China's internet data centers, aiming to be not only a business success but also a boost to the country's IT industry.

By establishing the fund, the two parties will build the infrastructure of internet data centers - or IDCs - in China, lease them to Chinese IDC operators, and distribute rental income to investors.

The first phase of the fund plans to raise $500 million and will be launched around the end of March, when it will start to invest in IDC infrastructure worth $1 billion.

"This will be the first investment fund focusing on projects starting with building new IDCs in China, instead of modifying established ones," Masatoshi Maki, chief operating officer of Construction, Realty and Logistics division at Itochu Corp, told China Daily.

"By investing in IDC infrastructure, we aim to ease the financial burden on Chinese IDC operators and help them focus on their main business, supporting the nation's IT industry," Maki said.

IDCs function as a key infrastructure of the internet technology industry, whereas the establishment of IDCs is very costly and requires strong technical know-how.

Itochu has teamed up with KDDI Corporation, a Tokyo-headquartered business operating nearly 50 IDCs worldwide, to provide advice on designing and operating IDCs built under the fund. Meanwhile, Itochu will leverage its expertise in energy saving and environmental protection.

With technical advice from KDDI and Itochu, CITIC Construction Co Ltd, a subsidiary of CITIC Group and a leading construction contractor, will carry out the construction work of the IDCs.

Maki noted the fund will not invest in data processing equipment, which will be left to domestic IDC operators who rent the infrastructure, complying with related regulations.

The $500 million needed by the first phase of the fund will be provided by Itochu as well as institutional investors from China, Japan and Singapore, Maki said.

The two parties plan to expand the scale of the fund in the following years. "The second phase of the fund is expected to raise $1 billion, sending the total value of assets invested by the fund to $3 billion," said Jiang Xuetao, managing partner of Xinjin Investment Holding Ltd, CITIC Group's investment platform which functions as the fund manager.

Wang Ruobing, a senior analyst with idcquan.com, a Beijing-based industry information provider and consultancy, said the fund may help to improve China's IDC industry by spreading cutting-edge designs and technologies to Chinese IDC constructors. "Energy saving and cost control will be the key areas where CITIC Construction should learn."

Behind Itochu's investment is China's booming demand for IDCs, which has created business opportunities for overseas IDC players which have yet to be fully explored, Wang added.

"China's demand for IDCs will see a rapid rise as the country expedites the use of 5G and internet of things technologies. We expect the market volume of China's IDC industry to grow around 30 percent year-on-year from 2019 to 2020, hitting 200 billion yuan ($29.5 billion) in 2020," Wang said.

"The fund is a milestone in our cooperation with CITIC Group, as it marks the beginning of our collaboration in the IT industry. We are also exploring the possibility of cooperating in big data management," said Akihiro Ueda, president and chief executive officer of Itochu East Asia block.