Amazon's Chinese partner, Beijing Sinnet Technology Co, said it would purchase Amazon's Chinese web services assets for up to 2 billion yuan (A$394 million) to comply with Chinese regulations.
Sinnet, which began operating the Amazon services in August 2016, said in a filing late on Monday the pending purchase would help the unit "comply with local laws and regulations and further improve service quality and security."
An AWS spokesperson told CRN that the company "did not sell its business in China" and that it "remains fully committed to ensuring Chinese customers continue to receive AWS’s industry-leading cloud services".
"Chinese law forbids non-Chinese companies from owning or operating certain technology for the provision of cloud services. As a result, in order to comply with Chinese law, AWS sold certain physical infrastructure assets to Sinnet, its longtime Chinese partner and AWS seller-of-record for its AWS China (Beijing) region.
"AWS continues to own the intellectual property for AWS services worldwide. We're excited about the significant business we have in China and its growth potential over the next number of years," the spokesperson said.
Chinese regulators are tightening rules on foreign data and cloud services, including new surveillance measures and increased scrutiny of cross-border data transfers.
In August Sinnet told customers it would begin shutting down VPNs and other services on its networks that allow users to circumvent China's Great Firewall, citing direct instructions from the government.
The changes are linked to new national cyber laws that came into effect in 2017, which make network providers liable for content deemed dangerous or offensive to "socialist values".
In 2013 Amazon Web Services signed agreements with provincial governments in China, and has previously worked with some of China's largest tech firms including Xiaomi Inc, Qihoo 360 Technology Co Ltd and Kingsoft Corp Ltd.
Cloud services have become a crowded and competitive field in China in recent years, with Alibaba Group Holding Ltd's cloud unit opening over a dozen overseas data centres since 2016.
Updated 15 November 8.22am with statement from AWS spokesperson clarifying that AWS did not sell its Chinese business but only physical assets and that AWS continues to do business in China.
(Reporting by Cate Cadell; Editing by Stephen Coates)