Liberalization & Deregulation

Internet Diffusion

Electronic Commerce

Hardware Manufacturing

Software Development 

Who uses IT?

IT Labor Market

IT Geographics

IT Financing

Government Policies

Legal Environment

Transborder Data Flows 

Analysis: IT Strengths & Weakness

Analysis: Impacts on the Business

Sources and Links

China has been successful in allocating substantial resources into it investments. Indeed, Chinese governments provide considerable capitals for IT companies to grow and hopefully to compete with the world leading companies. While the role of the government as investor has declined and there has been considerable diversification in sources of investment in IT companies, much of state investment remains centrally planned, with administrative controls 19. In China's Ninth Five-Year Plan (1996-2000), the Ministry of Posts and Telecommunications (MPT) fund 635 billion RMB ($ 76.8 million USD) in construction investment. In March 1998, the MPT merged with the Ministry of Electronic Industry (MEI) to form the Ministry of Information Industry (MII). MII also announced plans to invest 150 billion RMB ($18.1 Million USD) in to telecommunications infrastructure in 1998. 

2. Raise Fund from Users

China also allows telecommunication entities to set an initial telephone installation fee to be paid by applicants prior to installation. Although some consumers may feel uncomfortable, It helps the telecommunication sector to raise financial resources without cost. Through this fee, China's telecommunication sector gathered a great deal of capital and poured it into the construction of a telecommunications infrastructure 20. 

3. Attract Foreign Investment and Technology 

Chinese government also realized the positive effects of telecommunications infrastructure. The central government has enacted a national wide policy to attract foreign investment. The local governments have created flexible and elastic investor policies 20.

China has established 12 state-level software production bases. The government will make further support to the software industry in the next five years. Chinese policy makers make more efforts on developing the conditions necessaries to maintain a thriving domestic research communities. The research facilities that leading foreign high-technology companies have established in China in resent years. The PRC benefits from what has, in effect, became a reverse brain drain, as these companies are able lure some Chinese back from abroad, and keep some valuable researchers from leaving 21. 

4. Venture Capital Community 

The practice of venture capital financing in China is still in its infant stage. However, China’s huge technology and market potentials have been attracting much attention from Chinese governments and private sectors, and foreign venture capital communities. The rapid developments in the Internet and E-commerce and the needs for funds further speed up China’s process to improve its legal and institutional environments to advance venture capital in China. But still, despite the new policies has enacted in recent years, China’s institutional framework is still inadequate. 

Sino-Foreign joint venture enterprises and the subsidiaries set up by foreign companies in PRC will be cable to apply for to be listed on China's Growth Enterprises Market (GEM), or second board market 22. 

"Venture capital financing has been increasingly recognized in China as a necessary means for the effective and speedy development of a high technology industry" (Lo, 1999). Chinese government, companies and academic institutions have realized the importance and necessity of China to create a venture industry. However, China's existing legal system is unable to support such demanding. The major obstacles include 23, 

• Minimum capital requirement is too high to be meet by high-tech strat-ups. In strat-ups, a minimum capital of RMB 10,000,000 is required. Article 78 of the Company Law. 
• Devaluation of intellectual property discourages IT R7D efforts. Intangible property may constitute no more than 20% of the total initial equity contribution to a company. Article 24 of the Company Law. 
• No legal framework is available for the formation and operation of stock option plan for the start-ups. 

China's set up its two main stock markets in Shanghai and Shenzhen in 1991 and 1992 respectively. In 1998, a regulatory body- the China Securities Regulatory Committee (CSRC) was patterned after the Securities & Exchanges Commission in New York. In July 1999, China enacted its high standard and comprehensive national security law. Currently there are seven types of China shares 24: 

• State Shares –Shares owned by the state; 
• Legal Person Share – Share Owned by companies or legal institutes; 
• A-Shares – May be owned only by Chinese; 
• B-Shares – May be owned only by foreigners; 
• H-Shares – Shares in Chinese companies that are traded on the Stock Exchange of Hong Kong; 
• Red Chips – Shares in Hong Kong companies that are traded in Hong Kong but derive most of their profit from business in mainland China; 
• N- shares – American Depositary Receipts, issued by Chinese companies, that trade on the New York Stock Exchange. 

Following the general pattern, IT I POs have not only got the investments from state, but also attracted capital inflows form legal persons and foreign investors. 

In 1993, Chinese companies began to list shares abroad. Entering the global capital markets has been an instructive and beneficial experiment for IT companies. China's top Internet portal sites are now all publicly listed on the NASDAQ exchange, including China.com, Sina.com, Netease.com and Sohu.com. Wall is very optimistic over the prospect of those web portals. 

6. Perspectives 

The year 2001 will see the first year of China's 10th Five-Year Plan, and the government will continue to reform and create financial and currency policies, following international high standards, as China prepares for World Trade Organization membership. After China joins the WTO, foreign securities companies will swarm into China's market, with their advantages in capital, technology, service and well-established popularity. Although they will take part of China financial service business away from local institutions, but their abundant capitals will fasten China's IT industry, increase the companies operation efficiency and labor productivity.