Sector Overview
- World’s largest telecom market: 720 million mobile subscribers [2]
- Largest number of internet users in the world: 338 million [3]
- 217 million online gamers [4]
- ICT sales revenues in 2008: 6.3 trillion RMB (USD $930 billion)
- 2008 exports 3.53 trillion RMB (USD $521.8 billion), imports 2.46 trillion RMB (USD $363.7 billion): world leader
- Estimated to be 2nd worldwide in total size of industry [5]
- Dramatic growth: 12.5% increase, with projected growth of 11% in 2010
- Rising incomes and demand for the latest technologies
- A key priority sector for the Chinese government
China is a world leader in both imports and exports of ICT products and services. In fact, ICT makes up approximately 36.5% [6] of the country’s total exports, and 32.1% [7] of its imports. Since 2008, the industry has grown by 12.5%, and is forecast to grow by 11% in 2010. China’s main ICT exports, which make up over 61.4% of the total, are computer and communications equipment and electronic components. China’s main imports, making up approximately two thirds of the total, are electronic components. Value-added services have become a high-growth area, and are expected to become the hallmark of future success in this industry.
ICT is one of the key enabling technologies that has applications in a wide range of sectors within China. The Chinese government realizes the enormous value and potential of this industry, and has made its continued growth a priority. As such, a new governmental body, the Ministry of Industry and Informational Technology (MIIT), an expansion of the former Ministry of Information Industry, was created in March 2008 in order to encourage development of the ICT sector. MIIT is helping modernize industry by helping shift China’s focus from industrialization to informatization. The government has also implemented favourable taxation policies to stimulate R&D investment.
China’s primary ICT clusters are located in Beijing/Tianjin, the Yangtze River Delta, consisting of Shanghai and its surrounding cities, and the Pearl River Delta region, consisting of the Shenzhen-Guangzhou-Zhuhai corridor. (see Figure 1.) Secondary centers are also located in Sichuan (Chongqing and Chengdu) and Shandong.
Figure 1: ICT Clusters in China: [8]
Hong Kong
Hong Kong, a Special Administrative Region of the Mainland China, has one of the most liberalized and sophisticated telecommunications markets in the Asia region. Its regulatory system is independent from Mainland China. There are no foreign ownership restrictions in Hong Kong. Currently there are ten fixed-line and five mobile operators serving a population of 7 million in Hong Kong. Hong Kong has put in place substantial infrastructure which supports one of the world’s highest penetration rates of mobile phones (159%) and household fixed line services (95%). Despite the high degree of saturation, the Telecom and Information Technology sector continue to attract foreign players. Key growth drivers of Hong Kong’s ICT sector are its proximity to China and other South East Asian markets, its strong IP right protection and legal system, a highly liberalized market, and highly tech-savvy population. Many overseas firms use Hong Kong as a test-bed for their business development in Asia. Additional reports on the Hong Kong market, which cover the Telecom, Wireless Technology and E-Health subsectors, are available on the Trade Commissioner Service website.
2. Market and Sector Challenges
The enormous growth and speed with which the ICT industry in China has developed has brought significant gains to many, but also its share of headaches as well. Laws and infrastructure have not been able to keep up with the needs of new technology. In the telecom industry, for example, although the government and telecom carriers have been investing heavily in 3G, the market is already looking toward 4G technology. China has also yet to finalize the draft Telecommunications Law that has been in the approval process since 2001.
The protection of intellectual property rights is of constant concern for foreign companies. There is a considerable, although somewhat diminishing, risk of piracy, counterfeiting and reverse engineering in China. Although there are laws to protect IP rights, they are costly and time-consuming to enforce. A lack of experience in such matters has contributed to the inconsistencies cited in court rulings. Furthermore, it is very difficult to prove financial losses, figures which are necessary to bear burden of proof in court. For more information, we recommend referring to the “Recommendations for Protecting Your Intellectual Property Rights in China” document on the Trade Commissioner Service’s website, www.tradecommissioner.gc.ca/eng/document.jsp?did=96027&cid=512&oid=32.
ICT in China is characterized by an uncertain and changing regulatory environment, with frequent changes to taxes, import duties, and trade policy. The registration process for new products may be prone to numerous and lengthy delays. In addition, the Chinese government is planning to make it compulsory for foreign manufacturers of digital household appliances and other items equipped with computing devices to disclose key information, such as the source code for their products. This move, strongly opposed by foreign enterprises, is seen as favourable treatment towards information technology products made or sold in China.
China has heavy restrictions placed on the internet and websites, with heavy-handed censorship, monitoring, and enforcement. Companies may become confused by conflicting regulations from overlapping government bodies. For example, both the Ministry of Culture (MoC) and the General Administration of Press and Publications (GAPP) claim responsibility for the regulation of online gaming, and require different permits for a company to operate. Telecommunications and broadcasting have also traditionally been regarded as two separate and unrelated industries, and are under the respective administration and supervision of two parallel government agencies: MIIT and State Administration of Radio, Film and Television (SARFT). The central government has strict regulations that prohibit the two industries to set foot in each others’ areas, however, due to the rapid evolution of network technologies and the ever-enhancing degree of convergence of the two sub-sectors, the market requires their cooperation.
Although ICT in China presents many attractive opportunities, the market is not overly welcoming to outsiders. Strict barriers to entry in a highly competitive market make it difficult to a company to get established, and regulations which highly favour domestic firms make it difficult to stay. The State Council’s Medium and Long-Term Plan on S&T Development (2006-2020) specifically encourages government involvement to produce domestically-produced innovations, in order to reduce dependence on foreign technology. This, in combination with government procurement policies which favour purchase of domestic products, only adds to the complicated business environment. However, companies which are in a position to share best practices and new technologies in areas the government is trying to develop may find lucrative opportunities.
Sub-Sector Identification
Telecom/Wireless
The advent of 3G in China has changed the landscape of the telecom industry. China is now the target of choice for big players, and competition is fierce for handset makers to be able to partner with the best service providers. As of August 2009, there were 720 million mobile subscribers in China, an increase of 133 million (11.08 million per month) over the previous year. With penetration rates of 54.2% (below the international average, leaving room for growth), and the highest cell phone usage rates in the world, China’s appeal to foreign companies is clear.
In 2009, each of China’s three main telecom operators was granted a license for a different 3G technology. (see Table 1, below.) Together, these operators invested an estimated RMB 120 billion (USD $17.6 billion) in 3G infrastructure in 2009, and will continue to invest an estimated RMB 280 billion (USD $41 billion) in the near future. The government has also invested RMB 300 billion (USD $44 billion) to construct 160,000 new 3G base stations.
Table 1: Telecom Companies in China
| Company | Total Subscribers (millions) | Mobile Subscribers (millions) | 3G License |
|---|---|---|---|
| China Mobile | 514 | 514 | TD-SCDMA |
| China Telecom | 295 | 50 | CDMA2000 |
| China Unicom | 289 | 145 | WCDMA |
Smart phones, which offer a number of applications in addition to traditional phone services, have become the technology of choice for tech-savvy consumers with rising disposable incomes. On October 30, 2009, the long-awaited Apple iPhone became officially available for purchase in China, adding to the list of 3G-capable smart phones competing for business. The OPhone, which uses Google’s Android operating system, is likely to be the main competitor. Other systems vying for market share include the Blackberry, products by Nokia, and others which use Windows Mobile operating systems.
Although 2G and 3G networks will continue to co-exist until the new 3G ecosystem of technology, networks, and devices have been built and become mainstream, the market is already looking towards 4G (Long Term Evolution) technology as the answer to increased network stability and data speeds. Companies which can help bring this technology to China, and share R&D and best practices, will be in a position to vie for leadership in a market which is becoming ever-more favourable towards domestics. Now that 3G licenses have been awarded, contracts for equipment manufacturing also present a new opportunity. For example, China Mobile has recently announced tenders for Packet Transmission Network providers, which can help bridge the technological gap between 2G and 3G.
Table 2: Telecom Equipment Manufacturers
| Key Telecom | Equipment Makers | Key Mobile | Handset Makers |
|---|---|---|---|
| Local | Foreign | Local | Foreign |
| Huawei | Ericsson | K-Touch | Nokia |
| ZTE | Nokia-Siemens | Lenovo | LG |
| Datang | Alcatel Shanghai Bell | Coolpad | Sony-Ericsson |
| Potevio | Cisco | Gionee | Samsung |
| Avaya | Amoi | Motorola |
Software & IT Services
To say that China’s software industry has experienced rapid and dramatic growth would be a significant understatement. From 2001 to 2009, the industry has actually grown by more than 9400%, from humble beginnings of RMB 7.96 billion (USD $1.17 billion) to present-day valuations of 757 billion (USD $111 billion.) 2008-2009 alone saw an increase of nearly 30%. Whether this is a bubble or an indication of further long-term and substantial gains to come, this industry merits attention. Although the ICT market is extremely broad in scope, generally speaking, approximately 2/3 of the market deals with application software, while the remainder deals with electronic information products.
Recent figures estimate that there are over 16,000 local-certified software companies and more than 1.5 million software industry professionals in China [9]. There are more than 8,000 IT services companies and the majority of them are small businesses with less than 50 employees. The China Copyright Protection Centre registered 49,087 software products in 2008 alone. However, the current software market still remains somewhat dominated by foreign brands, with local software products comprising less than 30 percent of the market. This is in part because the local market still lacks core technologies, high-end software development expertise, and consistency in quality levels of software products.
This situation has created opportunities for Canada’s high-end software technologies and products. There is a particular interest in customized software products used in industrial design, testing, e-learning, mobile applications, data asset management, and information security. However, the retail market in China is fragmented and fraught with difficulties, making it difficult for Canadian companies to obtain access to the types of distribution chains they may be used to: creativity and patience is required to achieve success.
Some main factors for success in the Chinese software market include:
- Branding strategy
- Product functionality
- Pricing schemes
- Access to distribution channels
- Flexibility to deal with clients on individualized basis
- Technical support and customer service
One important area of growth has been in IT services, especially service outsourcing to Japan, the EU, and the US. In 2008, China’s revenue from IT services reached RMB 240 billion (USD $35.2 billion). Although external demand appears to have slowed, Chinese banks, telecommunications companies, manufacturers and the government continue to invest in IT services.
Table 3: Key Players in Software & IT Services
| Key Players in Software | Key Players in IT Services | ||
|---|---|---|---|
| Local | Foreign | Local | Foreign |
| Ufida | Microsoft | Digital China | IBM |
| Inspur | SAP | Neusoft | Cisco |
| Kindee | Oracle | CS&S | Intel |
| Red Flag | Symantec | Hi-Think | HP |
| Kinsoft | Sybase | Founder | NEC |
Digital & New Media
There are more internet users in China than anywhere else in the world- yet this appears to be just the beginning of growth to come. With 338 million users, a total penetration rate of only 27.1%, and year-on-year growth of 22% since 2000, the potential for digital new media and gaming is enormous. Not only are more people using the internet: they are also spending more time using it. The average user spends 2.7 hours per day online: over twice that of 2001 (1.2 hours/day.)
Online games represent the largest and fastest-growing segment of the new media and gaming market, worth RMB 20.4 billion (USD $3 billion) as of the end of 2008. 217 million gamers are part of this industry, of which 44 million pay for service. 28 million are under 22 years old. Online game penetration rates of 18.6% signal room for growth; and growth rates of 55% year on year mean this growth will happen quickly. Premium casual games are forecast to account for 40% of online revenue by 2010, and have 84 million users. By 2013, online gaming is forecast to be double over today’s levels.
Out of 131 companies operating in China as of the end of 2008, the top 13 companies dominate the market with a combined market share of 93%. Although games developed in China account for nearly 2/3 of market share, there is a place for foreign games via licensing agreements: in particular, massively multiplayer online games have been especially successful. For example, Blizzard’s World of Warcraft has become one of China’s most popular online game. Foreign companies, such as Ubisoft, have also been able to lower game development and animation costs by establishing facilities in China. There are also opportunities present for companies that can help enhance online gaming security features, such as Trojan Horse viruses used to steal game credits from paying users.
Table 4: Key Players in China’s Gaming Sector
| Key Players in Gaming | Key Web Sites/Portals | ||
|---|---|---|---|
| Local | Foreign | Local | Foreign |
| Shanda | Blizzard | Sina | |
| NetEase | Electronic Arts | Sohu | Yahoo |
| Tencent | Nintendo | Tencent | eBay |
| Perfect World | Konami | Baidu | MSN |
| Changyou | T3 | Taobao | |
| Crystal CG | NCsoft | Youku | |
Photonics
Over the 2001-2008 period, the length of China’s optical fibre network increased from 1.8 to 6.76 million kilometres. China’s optoelectronic industry has seen annual returns of 30%, and accounts for 5% of the global market. With an industry turnover of nearly RMB 307 billion (USD $45 billion), however, global market share is expected to increase to 10% by 2010.
Although the majority of China’s production currently focuses on optical fibres and cables, opportunities for new entrants are present in the high-end, high-tech area of the market. The Chinese government has given priority status to research and development in optoelectronics, with a view to make China a global research and investment. A number of Optoelectronics Industry Development Science & Technology Zones have been established since 2000 (see Table 5), along with several National Engineering Research Centers. There are eleven important national optoelectronics laboratories and five laboratories within the Education Ministry. A large market potential, abundance of well-educated engineers, and low costs of labour are attracting significant investment by foreign optoelectronics companies and venture-capital companies. Bright East Group Ltd, for example, recently invested RMB 2.64 billion (USD $387 million) to build an industrial park in Chongqing that will produce 2.4 million kilometers worth of plastic optical fibres annually by the summer of 2010.
Key areas with market potential for Canadian capabilities include laser related technologies, high-end display material and devices, infrared products and technologies, and products and technologies used in labs, universities and research institutes for R&D and quality testing.
Table 5: Major Optoelectronics Enterprise Development Bases
| Beijing | Shijiazhuang |
|---|---|
| Wuhan | Shenzhen |
| Shanghai | Changchun |
Table 6: Key Players in Photonics
| Local Companies | Foreign Companies | ||
|---|---|---|---|
| Optic Fiber & Communications | Laser/Infrared | LED | Various |
| Changfei | Sunshine Laser | Sanan | FLIR |
| Fiberhome | Daheng Laser | DSD Lighting | Texas Instruments |
| Hengtong | Dali-Tech | Jiuzhou | Sofradir |
| Yangtze Fiber Optics Corp. | Shanghai Nicera Sensor | Ledman | Corning |
| Jiangsu Fasten | Access Laser | Wuhan HC SemiTek | Tianma USA |
| Philip | |||
| Cree | |||
| Aglilent | |||
4. Future outlook and opportunities
Overall, success in China’s ICT market will largely depend on a company’s ability to adapt to a Made by China, rather than Made in China, mentality. China is in a unique position to be able to provide all the parts of the supply chain, from mineral extraction to final product. While traditionally the industry has focused on manufacturing parts, assembly, and reverse engineering, the shift in focus to R&D development and value-added services is what has enabled China to distinguish itself in the minds of the international community, and led in part to the industry’s great success.
Canadian companies can use this as an opportunity to share best practices as a way of attracting lucrative joint venture R&D partnerships.
This will help Canadian companies’ own domestic sales, as lowered R&D costs, in addition to what they learn from their Chinese partners, will allow Canadian companies to remain more competitive in their own markets. Lowered manufacturing costs may also make shipment to tertiary locations viable, such as shifting production for European orders to China. The Chinese government offers favourable taxation rates for high-tech entrepreneurs. They encourage investment and R&D collaboration, and invest heavily in this industry themselves.
Increasing demand, combined with increasing personal disposable income, paints a favourable picture for growth opportunities. In particular, value-added services have increased in desirability exponentially. This offers significant potential for additional revenue streams, and is only limited by the imagination of application developers. One example is the SIM card with RFID technology that has been developed by China Mobile, which will enable users to pay for purchases at Expo 2010 in Shanghai by swiping their phones [10].
Companies should also keep in mind MIIT’s key goals for China’s 11th 5-year plan. In particular, those who are able to help Chinese companies increase their higher value-added manufacturing and service capabilities, develop global brands, add expertise in R&D, and accelerate construction will be in the best position to succeed.
China is a challenging market, but filled with opportunity for those companies with the right value proposition. Given the diverse nature of the ICT sector, it would not be possible to identify and describe in detail the various subsectors. We encourage you to contact the Canadian Trade Commissioner Service in China, who can help you assess your market potential, identify qualified contacts, and help support your business development interests in China.
Canadian Government Contacts:
Embassy of Canada (Beijing)
Heidi Wang
Email: Heidi.Wang@international.gc.ca
Consulate General of Canada in Shanghai
Sandra Jiang
Email: Sandra.Jiang@international.gc.ca
Consulate General of Canada in Guangzhou
Yan Ming
Email: ming.yan@international.gc.ca
Consulate of Canada in Chongqing
Peter Liao
Email: Peter.Liao@international.gc.ca
Consulate General of Canada in Hong Kong
Eunice Wong
Email: Eunice.Wong@international.gc.ca
Department of Foreign Affairs and International Trade Canada
125 Sussex Dr.
Ottawa, ON, K1A 0G2
Website: www.tradecommissioner.ca
Key Chinese Government Agencies (In Order of Relevance):
- MIIT: Ministry of Industry and Information Technology: Regulates and sets policies forTele/wireless communications, software, computer & electronic products, and IT services
- MOST: Ministry of Science and Technology: Innovation, hi-tech development, and commercialization of technologies
- SARFT: State Administration of Radio, Film and Television: Broadcasting, digital TV, cable TV networks, and IPTV
- GAPP: General Administration of Press and Publications (National Copyright Administration): Online games and E-publications
- SIPO: State Intellectual Property Office: Copyrights and patents. This office also handles complaints dealing with IP violation
- SAIC: State Administration for Industry & Commerce – Trademark registration
Key Industry Associations and Research Institutions (In Alphabetical Order):
- CACE (China Association of Communications Enterprises)
- CAS (Chinese Academy of Sciences)
- CAST (China Association for Science and Technology)
- CATR (China Academy of Telecommunication Research)
- CCSA (China Communications Standards Association)
- CIC (China Institute of Communications)
- CIE (Chinese Institute of Electronics)
- CNNIC (China Internet Network Information Centre)
- COEMA (China Optics & Optoelectronics Manufacturers Association)
- CSIA (China Software Industry Association)
- NCNST (National Center for Nanoscience and Technology, China) ]
- SMIA (Shanghai Media Industry Association)
- TDIA (TD-SCDMA Industry Alliance)
Selected ICT Industry Events:
Industry-wide
China High Tech Fair
Annually Next fair: November 2010, Shenzhen
Website: www.chtf.com
China Beijing International Hi-Tech Expo
Annually
Next expo: May 2010, Beijing
Website: www.chitec.cn
Telecom/Wireless
PT/EXPO COMM CHINA
Bi-annually
Next expo: October 2010, Beijing
Website: www.ptexpo.com.cn
P&T Wireless and Networks COMM CHINA
Every 2 years
Next expo: October 2011, Beijing
Website: www.ptexpo.com.cn
China International Mobile Sci-Tech Exhibition (MOBILE CHINA EXPO)
Annually
Next expo: March 2010, Shanghai
Website: www.mobilechinaexpo.cn
Digital New Media & Gaming
China Digital Entertainment Expo & Conference (China Joy)
Annually
Next expo: July 2010, Shanghai
Website: www.chinajoy.net
GDC China
Annually
Next expo: December 2010, Shanghai
Website: www.gdcchina.com
Broadcasting
China Content Broadcasting Network Expo (CCBN)
Annually
Next expo: March 2010, Beijing
Website: www.ccbn.tv
International Radio Film & Television Exposition (BIRTV)
Annually
Next expo: August 2010, Beijing
Website: www.birtv.com
Software & IT Services
China International Software & Information Service Fair (CISIS)
Annually
Next fair: June 2010, Dalian
Website: www.cisis.com.cn
Int’l Soft China
Annually
Next expo: July 2009, Beijing
Refer to the China Software Industry Association
Website: www.csia.org.cn
China International Software Products Expo
Annually
Next expo: September 2009, Nanjing
Website: www.cis-expo.com
Photonics
China International Optoelectronic EXPO (CIOE)
Annually
Next expo: September 2010, Shenzhen
Website: www.cioe.cn
China International Lasers, Optoelectronics, and Photonics Exhibition (ILOPE)
Annually
Next expo: October 2010, Beijing
Website: www.ilope-expo.com
Optics Valley of China International Optoelectronic Exposition and Forum (OVC EXPO)
Annually
Next expo: November 2010, Wuhan
Website: www.ovcexpo.com.cn
[1]The Government of Canada has prepared this report based on primary and secondary sources of information. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations listed herein. Readers should independently verify the accuracy and reliability of the information.
[2] As of the end of September, 2009
[3] China Internet Statistics Report, Q2/2009
[4] As of June, 2009, as per China Internet Network Information Centre
[5] According to interview with Li Yizhong, MIIT Minister
[6]World Trade Atlas, Chinese government reporting total 2008 exports USD $1.428 trillion, of which the Chinese government (MIIT) reported USD $521.8 billion were for ICT exports
[7] World Trade Atlas, Chinese government reporting total 2008 imports USD $1.131 trillion, of which the Chinese government (MIIT) reported USD $363.7 billion were for ICT imports
[8] Map source: www.bikeshanghai.com
[9] 2008 figures released by Ministry of Industry and Information Technology (MIIT)
[10] TMT China Weekly 07.11.2009-13.11.2009, Volume II, Issue 41
Source: The Canadian Trade Commissioner Service