China also keeps a separate student network that covers university campuses. An Internet company needs servers on each network to offer services to its users, Mushero said. It also needs specially placed servers to offer services via the country's mobile networks, he said. China's three big mobile carriers are all state-owned and have autonomous branches in each province, further complicating business with them.
Links can be purchased between China's separate networks. But companies that, for instance, want to reach both northern and southern China must have separate IP (Internet Protocol) addresses on the two regional networks, which also raises new needs in the domain name system (DNS), Mushero said. The DNS is what directs Internet users to a Web site's correct IP address when they type in a domain name like idg.com.
Networks are much more strongly linked in the U.S., Mushero said.
"Here it's more fragmented, so it's more difficult," he said. "You can't just serve the whole country from one place."
For Web sites that offer user-generated sections, government regulation is another challenge in China. Chinese authorities expect companies to keep their Web sites free of certain sensitive content. The owner of a blog site, for instance, could be punished for failing to erase pornographic pictures posted by a user or comments on sensitive political issues like the 1989 pro-democracy protests in Beijing's Tiananmen Square.
Global IT service providers like IBM and Hewlett-Packard compete in China alongside smaller local vendors. ChinaNetCloud partly competes with those vendors, but its virtualization services are somewhat unique in China, said Tina Tang, a principal analyst at Gartner. Virtualization is not yet common there, despite being widely discussed, she said.
One of the biggest hurdles for China's IT services industry "is the level of red tape that still exists and is unlikely to disappear in the near future," according to an Ovum report.
ChinaNetCloud has received several hundred thousand dollars in funding, Mushero said. It could become profitable anytime but is currently investing in growth instead, he said.
Sign up for MIS Asia eNewsletters.