The Chinese IT Market Still Has Much Potential

Feature Article | October 25, 2004 by admin

Situ Wei

Situ Wei

What characterizes the IT market in China today?

Situ: The entry of China into the World Trade Organization has accelerated economic change. Consider that the average gross national product per person in China has reached $1,000 – a milestone. Some 87 million of the 1.3 billion inhabitants of China use the Internet, according to the most recent investigations of the China Internet Network Information Center (CINNIC). There’s a great deal of unused potential here. Overregulation, which we see particularly on the Internet, tends to inhibit growth. And overregulation also affects the pricing of Web services and telecommunications.

What positive developments do you see?

Situ: The flexible rates for Short Message Service (SMS) and other new services to be developed with mobile telephones have positive effects. The content service providers profit from these effects. The use of SMS is a Chinese success story. A phenomenal 200 billion SMS messages were sent last year in China. The figure should reach 300 billion this year. One reason for this popularity is the attractive price – about € 0.01 per message.

How strongly is China involved in IT research and development?

Situ: Industrial manufacturing of hardware has entered a period of strong growth. China is unlikely to remain at this level because its capacity for research and development is still too low. China must continue to catch up in this area. And governmental research and development funding for software is insufficient. China will keep up with international competition when it increases its funding for research and development and when companies find attractive conditions for cultivation. In my opinion, offshoring and the hosting of IT services, on-demand computing, will be the next important defining development.

How is China developing itself as an offshore location?

Situ: Some big players are active in the market, such as Digital China, the country’s largest IT distributor and system integrator, which focuses on banking and financial services. But the small and midsize companies offer a more flexible model for offshoring. For example, some companies specialize in HR services and allow customers to have comprehensive control of all their work processes. The greatest advantage that China offers this area and all of IT is an overwhelming supply of personnel with university degrees who work at low wages. Consider two examples. First, the capital city, Beijing, has some 40 universities. Other large cities, such as Nanjing or Xian, have students training at some 30 colleges. We never face the problem of finding the right personnel for software development and other research and development projects.

How competitive are the IT standards developed in China?

Situ: Two types of standards must be distinguished. On the one hand, China has the same kind of industry norms that exist in other countries. The China Communication Standardization Association (CCSA) is a good example. On the other hand, more and more industry-specific specifications are becoming prevalent, such as those the telecommunications suppliers use and agree upon among themselves. These standards can be implemented more successfully than those that come from official channels.

What characterizes the current mobile telephone industry in China?

Situ: In terms of the mobile telephone industry, China is a straggler. That’s why international standards apply in this area for the most part. But China has become the largest mobile communications market in the world with 310 million connections. In the first six months of this year alone, 36.3 million mobile telephones were sold in China. China mobile has a market share of 60 percent; China Unicom has a market share of 32 percent. In the first half of this year, China invested $2.7 billion in its network infrastructure and will invest an additional $4.3 million in the second half of the year. These two suppliers alone earned $10 billion in revenue in the first half of this year and reached gross profits of $2.3 billion.

China wants to introduce its own standard for mobile telecommunications. Does it have a chance to succeed?

Situ: China has become self-confident and is pushing the introduction of its own technology for a mobile Internet and wireless multimedia applications of the third generation (3G). Comparable with the European UMTS standard, the TD-SCDMA standard was developed with governmental funding. It bundles the advantages of several mobile telecommunications designs and was developed by Siemens and Chinese partners. It’s competitive with existing 3G mobile telecommunications technologies. Mass production of end devices for TD-SCDMA should start in 2005. The approach has potential to become the standard throughout the world because the worldwide industry consortium, 3rd Generation Partnership Project (3GPP), has already recognized it as a completely valid standard.

What affects did the SARS epidemic in April and May 2003 have on the use of the Internet and the implementation of e-government?

Situ: During the epidemic, many people avoided public places and shopped over the Internet. Official information on the Web was insufficient. That situation should be changing now. SARS had a positive affect on Chinese officialdom: it learned it must provide information much more openly and transparently on the Internet.

At the beginning of 2004, a regulation of the Chinese government was to go into effect that demanded that equipment for local area networks (LAN) include an encryption technology produced in China. Opposition in the United Stated led to a repeal of the regulation. Did China do itself a favor with the repeal?

Situ: At first, the requirement was successfully used in negotiations between China and the United States to protect Chinese products. Since then, however, the balance of trade between both countries has turned to China’s benefit. Because China exports more than it imports, the regulation was no longer necessary. In principle, I regard it as fully legitimate for China to employ such means. But China should also give up its reservations and be brave enough to participate actively in the work of international standardization.

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