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

In 1997, China's information technology (IT) market was valued at US $7.3 billion, with computer hardware accounting for 80.6 percent of sales; software accounts for US $403.3 million, and services US $366.6 million. Experts predict that China's IT spending will increase to US $19.0 billion by 2001, with most of the spending on IT equipment and services. The information services and software industry is expected to grow at an annual rate of 28 percent until the year 2000, with applications software purchases expected to increase 34 percent during the same period, and reach over US $7 billion by 2002.

Demand for personal computers (PC) has increased at an average rate of 30 percent per year since 1992. Three million personal computers were sold in 1997, with sales predicted to reach 6.7 million units annually by the year 2000. Most of the purchases are still made by government agencies, but family purchases are on the rise.

PC market

The Chinese IT industry, and especially China's PC market, has grown enormously in recent years. In 1996, some 2.1 million PCs were shipped, according to statistics compiled by China's Center of Computer and Microelectronics Industry Development (CCID). This was an 83% increase from the previous year, and that range of growth continues. Predictions are that the total number of PCs shipped in China this year will exceed 8 million units, rivaling shipments in the Japanese market.

Imports of fully assembled computers have slowed since foreign companies have expanded their manufacturing facilities in China. Tariffs on computers were reduced in October 1997, and as Chinese government pushes for entry into the World Trade Organization, further tariff reductions are expected. An elimination of these tariffs would make foreign brands more competitive with their local counterparts. A local brand, Legend, has taken over the market lead by offering improved quality, lower prices, and being able to bring new technologies more quickly to the market. But foreign companies remain competitive by manufacturing locally and offering after-sales services.

China's computer industry, like those of most state centralized economies, derived originally from the military. It was not until the 1980s that non-military involvement in the computer industry was begun. The state formed a number of small manufacturers into Great Wall Computer Group and a national industry was born.

IC Chip

China produced over 4.1 billion units of integrated circuit (IC) chips, and sales revenue topped RMB 10 billion (USD 1.2 billion) last year. However, half of these IC chips were exported and only 10% of domestic demand was satisfied, Zheng Mingzheng, deputy chief of the Electronics Information Products Management Department under the Ministry of Information Industry, told Interfax in an exclusive interview.

The sales of China-made IC chips accounted for only 1% of total global sales. Although the situation has improved in recent years, domestic demand for IC chips is still far from satisfied, indicating huge potential for the domestic IC chip market.

In order to boost the IC chip industry, the State Council has issued preferential policies to support the development of domestic IC companies. IC chip companies will be levied only a 17% value-added tax before 2010, while the percentage for common industries remains 33%. The recent flurry of announcements by China's IC chip industry, suggests that many domestic companies are responding to demand and policy considerations.

At present, China has 7 domestic IC chip plants, 20 domestic IC chip design companies whose annual average revenue exceeded RMB 1 million (USD 121,000) and more than 10 sealing factories. Four IC chip design companies are expected to achieve revenue of over RMB 100 million (USD 12 million). Meanwhile, 6 to 8 new IC chip production lines are under construction in Shanghai, Beijing and Shenzhen. All of them will be put into operation within 2 or 3 years, and will bring new in multi-billion dollar revenues, according to Zheng. As the China telecom market continues its sizzling growth, officials, concerned that core technologies and lucrative contracts remain in the hands of foreign telecom manufacturers, are calling for more government support for domestic manufacturers and encouraging the domestic industry to target the lower-technology components market.

Telecom

Foreign manufacturers, they note, have signed contracts worth billions of dollars with China Telecom, China Mobile, and China Unicom. The Chinese Government has already announced that it will invest RMB 1.4 billion (USD 168 million) to bolster domestic mobile phone manufacturing. In the first six months of this year, sales of mobile phones reached 12.7 million units, with domestic brands sharing only 3% of the volume.

Domestic manufacturers should also pay more attention to developing the telecom component market because it requires relatively lower technology value, Yang said, noting that current component supplies, including batteries and liquid crystal displays, mostly come from Southeast Asia. China's fixed-line capacity reached 163 million lines at the end of June, and the number of lines is expected to surpass the 180 million lines in the US. In addition, the number of China's mobile phone subscribers, 59.3 million, has now surpassed Japan.

Domestic suppliers of computer hardware companies

There are several major domestic suppliers of computer hardware and peripherals that are both state-owned and non-state owned. The Great Wall Computer Corporation, China's largest producer of computers and computer peripherals, has entered into several joint ventures with foreign partners to enhance its productivity. Great Wall is under the control of China's Ministry of Electronics Industry.

The Legend Group, a major producer of advanced personal computers, is one of the first Chinese manufacturers to make computers with Intel's Pentium processor. It is also under the control of the Ministry of Electronics Industry.

The Stone Group is the largest and most versatile non-state owned computer producers in China. Much of its computer manufacturing is focused on the office automation market.

The Founder Group Corporation is a major distributor of foreign and domestic PCs. It distributes Unysis personnal computer products and is involved in joint projects with Hewlett Packard, Digital Equipment and Cannon to develop PCs for China's market. Founder Group's primary emphasis is on finance and banking sectors. The Founder Group is also China's leading producer of PCs with Chinese language software capability and as a result, has made a niche for itself in the market.