After quarters of rapid growth fueled by remote work, the cloud market is cooling down as businesses look for ways to curb cloud spending in post-COVID times and an uncertain economy. AWS saw its growth slide to the mid-teens in the first month of the new year; across the industry, the market slowed to 21% growth, down from 36% the year before.

There is a silver lining — U.S. cloud giants are getting business from Chinese internet firms that are looking to set up shop overseas. China’s tech companies have been expanding abroad for decades, but many feel a new urgency to venture out amid growing competition and compliance risks at home (which you can read about in detail here, here and here).

TikTok’s meteoric rise to global dominance is a source of inspiration for the legion of Chinese chuhai startups, a term that literally means startups “going to the sea” and is used to describe those carving out an overseas business. TikTok, the third-largest social network only after Facebook and Instagram, will approach one billion users by 2025, forecasts market intelligence firm eMarketer. But its challenges in the West — questions around its data security and relationship with Beijing — also sound an alarm to its followers.

In a bid to convince the U.S. government that it doesn’t expose Americans’ data to China, TikTok forged a partnership with Oracle in late 2020 after the Trump administration’s plan to force a sale of the short video giant fell through. In June last year, TikTok said it was migrating all U.S. user data to Oracle’s stateside servers. And in August, it was reported that Oracle was monitoring TikTok’s algorithms and moderation system for potential manipulation by China.

All these moves go to show the West’s mistrust of companies with any Chinese link these days, whether that means having a founder with Chinese nationality or an engineering team on China’s soil. The first and perhaps most important step in these firms’ localization efforts — most crucially, establishing trust in Western customers and the government — is storing data in their destination market if it’s a major one like the U.S. or at least a neutral country like Singapore.

Unsurprisingly, AWS, Microsoft Azure and Google Cloud are the top choices for China’s chuhai firms, according to dozens of conversations we had with globalizing Chinese startups over the years. China’s own tech powerhouses Alibaba and Tencent also offer cloud solutions to seafaring customers, but picking a Chinese vendor is probably the last thing companies want to do in trying to appease Western regulators’ data security concerns.

Would this wave of chuhai startups be a big boost to the Western cloud market? Probably not in the short term. Most of these companies are still in the early days of their global expedition; even the TikTok deal won’t move Oracle’s cloud market share needle significantly, my colleague Ron wrote. But assuming a number of players eventually achieve a meaningful overseas footprint, their preference for U.S. cloud providers will hurt China’s cloud providers.

Case in point, Alibaba pointed out in its June 2022 earnings report that its cloud segment was hit by the loss of a key client, as it saw a “decline in revenue from the top Internet customer that has gradually stopped using our overseas cloud services for its international business due to non-product related requirements.” This top internet customer was speculated to be TikTok, which reportedly moved off Alibaba Cloud as geopolitical tensions heightened.