China Information Technology Report Q3 2010

China Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's information technology industry.

China’s IT market should remain a global outperformer during the 2010-2014 period. The government’s stimulus package and rural electronics products subsidy programme helped to revive confidence in 2009, and IT spending is forecast to reach US$86.9bn in 2010, increasing to US$139.1bn by 2014. Total IT spending in China is projected to grow at a compound annual growth rate (CAGR) of 16% over the five-year forecast period. China’s IT market has a number of strong fundamentals in its favour. A number of factors, including a vast potential rural market, government spending and gradual modernisation in sectors such as education, healthcare and manufacturing, will help to sustain market growth.

In 2010, spending growth is forecast at around 11%. The government’s subsidy programme will continue to boost demand from the vast, under-penetrated rural areas of China. By the end of 2009, more than 1mn computers had been sold under the programme. A greater willingness to provide credit to the household sector should help to expand the market for ‘big ticket’ items like PCs over the next five years.

Industry Developments

As of September 2009, the government had not announced a new deadline for PC manufacturers to include the controversial Green Dam filtering software in PCs sold in China. China’s Ministry of Industry and Information Technology (MIIT) previously announced that it had delayed the July 1 2009 deadline for launching the software. Green Dam, which would have been mandatory for any PC produced or sold in China, was ostensibly designed to block internet pornography, but concerns were expressed about privacy.

Informatisation among small and medium-sized enterprises (SMEs) is a government priority, given tighter credit conditions and that smaller companies are the most vulnerable to the current decline in demand in many of China’s export markets. The MIIT proposed to allocate capital to inject into smaller firms. The ministry also said that it would add credit loans and guarantee credit.

Competitive Landscape

In 2010, Chinese vendor Lenovo remained the market leader in both the desktop and notebook PC segments of its domestic market. The company has around one-third of the growing notebook segment, far ahead of its nearest rival HP, which has less than 15%. Other competitors such as Acer, Dell and local company Founder have less than 10% PC market shares. Lenovo said that it aims to sell 5mn computers in rural areas and cover 320,000 villages across the country. To this end, the company will establish 700 new county-level stores in the next three years and introduce 15 new models specifically designed for the rural market.

In June 2010, IBM launched a strategic alliance with local software giant Kingdee. The two companies will team up to offer high-end clients solutions based around Kingdee software plus IBM services. Target sectors include state-owned enterprises, hospitals and real-estate companies. Meanwhile, HP said that it planned to boost headcount at its Chinese outsourcing unit by as much as 25% due to a ‘robust’ market. The outsourcing unit now employs around 3,600 people in China, having been boosted by HP’s acquisition of fellow US company EDS.

In May 2010, China Mobile announced that it was interested in selling the Apple iPad, but the official release is likely to take some time, as the iPhone did not reach the Chinese market until two years after the launch in other countries. In the meantime, however, it has been estimated that there are around ‘unofficial’ 100,000 iPads in China. Copycat devices are also available on the local market for a far lower cost than the US$500 upwards required to purchase an iPad.

Computer Sales

China’s computer hardware sales are projected at US$57.1bn in 2010 and are forecast to reach around US$89.8bn in 2014. Market growth this year is forecast to be around 10%. The roll-out of 3G mobile services by China’s mobile telecoms network operators will stimulate sales of netbooks, while government subsidy programmes will boost demand from the vast, under-penetrated rural areas. The authors forecast that computer hardware CAGR for the 2010-2014 period will be around 12%, with SMEs, smaller towns and rural areas driving growth, along with replacement of desktops with notebooks. Vendors face the challenges of geography and channel underdevelopment in China’s vast rural hinterland, where villages are often widely dispersed and far from the nearest large town. Vendors such as Lenovo and HP have been aggressively expanding their sales networks outside China’s largest cities.

Software

The authors project that the Chinese software market will grow at a CAGR of 13% over the 2010-2014 period. The total value of the Chinese software market is forecast to reach US$11.3bn in 2010, up from US$9.8bn the previous year. In 2009, software revenue growth was down on the same period of the previous year, but remained robust as enterprises looked for solutions that would help them improve performance and operational efficiency.

As a rule, Chinese enterprises tend not to pay enough attention to software. However, there is a growing trend for companies to seek greater efficiency by using IT to improve productivity and lower costs, including labour costs. The hosted application model may already account for between one-fifth and onequarter of China’s software revenues.

IT Services

The IT services market has been the fastest-growing segment of the IT market in recent years and continued to show robust growth in 2009, despite the global economic slowdown. This segment is projected to achieve expected sector CAGR of 14% between 2010 and 2014. Spending is projected to reach around US$18.4bn in 2010 as banks, telecoms operators and manufacturers invest to meet the challenges posed by growing demand for their services and the more competitive environment generated by WTO membership.

Shanghai will be a key location of IT services opportunity over the authors five-year forecast period, as the city invests to implement its plan of becoming a world-class financial and shipping centre. In the telecoms sector, the launch of 3G services and associated network roll-outs will generate spending, while government spending is expected to increase as a percentage of GDP thanks to stimulus packages. Other potential growth areas include healthcare, banks and retail. SHOW LESS READ MORE >

Executive Summary
SWOT Analysis
Chinese IT Industry SWOT
Chinese Telecoms Sector SWOT
China Political SWOT
China Economic SWOT
China Business Environment SWOT
IT Business Environment Ratings
Asia IT Business Environment Ratings
Table: Asia Pacific IT Business Environment Ratings
Asia Regional IT Markets Overview
China Market Overview
Government Authority
Hong Kong
Table: China Computer Production
Table: End-User Analysis, China’s IT Sector, 2006
Industry Developments
Industry Forecast Scenario
Table: China’s IT Sector – Historical Data & Forecasts (US$mn Unless Otherwise Stated)
Internet
Table: China Telecoms Sector – Internet – Historical Data & Forecasts
Macroeconomic Forecast
Table: China – Economic Activity
Competitive Landscape
Company Profiles
Kingdee
Dell
Lenovo
IBM China
Country Snapshot: China Demographic Data
Section 1: Population
Table: Demographic Indicators, 2005-2030
Table: Rural/Urban Breakdown, 2005-2030
Section 2: Education And Healthcare
Table: Education, 2002-2005
Table: Vital Statistics, 2005-2030
Section 3: Labour Market And Spending Power
Table: Employment Indicators, 2001-2006
Table: Consumer Expenditure, 2000-2012 (US$)
Table: Average Annual Manufacturing Wages, 2005-2012
Methodology
How We Generate Our Industry Forecasts

- Kingdee
- Dell
- Lenovo
- IBM China