Caixin
Mar 13, 2017 04:22 PM
BUSINESS & TECH

Tencent Wins Xiamen Government Cloud Contract for One-Hundredth of Yuan

(Beijing) — Internet giant Tencent Holdings Ltd. has won a contract to provide Internet-based cloud services to a government department in the coastal city of Xiamen for just 0.01 yuan — about one-seventh of a U.S. cent — raising concerns about the validity of the bid.

The project to provide cloud-hosting services from the Xiamen Information Center had a budget of 4.95 million yuan ($717,000), and attracted bids from five parties, including all three of China’s state-run telecom carriers and a local Xiamen company. Bids from the other four ranged from 1.7 million yuan from the local unit of China Telecom Corp. Ltd. to 3.09 million yuan from the local unit of China Unicom.

Industry observers noted that 0.01 yuan, or 1 fen, is the lowest possible bid, and that such lowball offers are relatively common in emerging industries like cloud services. One notable case was e-commerce giant Alibaba Group Holding Ltd., which previously acknowledged its cloud unit had basically helped China’s rail operator to set up its online ticket website for free. Since then, the operator has become a major client.

“It’s quite apparent that (Tencent’s) intention was to win the bidding first, and then to get later profitable value-added services through this initial contract,” said one industry observer, speaking on condition of anonymity. “For them, several million yuan is just a marketing cost.”

A Tencent spokeswoman had no comment on the matter.

But at least some experts from the legal community said such lowball bidding may be invalid or at least require an explanation from the bidder in an effort to avoid substandard products or lower the risk of failure to meet contractual obligations.

“A bid of 0.01 yuan is obviously not honest and therefore could affect the quality of the product delivered,” said Xue Qitang, a Beijing-based lawyer and expert on laws that govern such bidding processes. “It could raise doubts about their ability to complete the project. … We should also look at the comments accompanying the bid document and comments from the committee members considering the bid.”

Tencent, Alibaba and China’s three telecoms carriers are part of a crowded field of companies bidding for business in cloud services, an emerging and highly competitive area being strongly promoted by Beijing. Others include major foreign multinationals like Amazon and Microsoft.

Contact reporter Yang Ge (geyang@caixin.com)

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