Chinese internet and video-gaming giant NetEase is shutting down one of its public cloud computing services amid intense competition in a crowded market.

The Hangzhou-based company on Friday informed its corporate clients that its public cloud service would be taken offline on April 7, citing a "business strategy adjustment". Clients with unused credits in their accounts are eligible for a refund upon request, according to a message seen by the South China Morning Post.

A customer service representative confirmed the information, urging existing customers to migrate to other cloud platforms before the service ceases operations. The service's domain, 163yun.com, now redirects visitors to NetEase's big data solution business, Shufan.

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NetEase did not immediately respond to a request for comment on Friday.

The abrupt termination of its nearly decade-long service comes as China's public cloud market reaches a turning point, driven by the rapid surge in artificial intelligence (AI) - a sector where NetEase has been lagging, according to analysts.

The surprise move highlights the fierce competition in China's public cloud market, where state-backed telecommunications network operators are jostling with major tech companies to attract clients. Providers had been striving to capitalise on a national push for AI to fuel growth, said Ivan Lam, a senior analyst at consultancy Counterpoint.

AI spurred a resurgence in the country's public cloud market in the first half of 2024. The domestic market expanded by 8 per cent on the back of rising demand for AI-related activities, according to a report from IDC China in October.

However, AI cloud services require massive investments. Alibaba Group Holding, owner of the Post, last month pledged to invest $52 billion to boost cloud computing and AI infrastructure over the next three years, in the largest-ever project by a private Chinese business in those fields.

NetEase lacks a competitive edge against rivals such as Alibaba and ByteDance, according to Li Chengdong, founder and chief analyst at Beijing-based internet consultancy Dolphin.

The company has yet to launch a general-purpose flagship AI model comparable to Alibaba's Qwen or ByteDance's Doubao, both of which are among the most popular in China. NetEase's Fuxi AI models are focused on industrial applications in sectors such as robotics and video-gaming production.

The retreat reflects NetEase's recalibration towards its core business, including video gaming, according to Li.

Competition in China's AI cloud market is expected to intensify, driving providers to increase investments in areas such as computing infrastructure and tailored application solutions, according to Lam.

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