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ICT Sector

1. Sector overview

Being one of the three most important ICT clusters in China, the Yangtze Delta region (comprised of the City of Shanghai, Jiangsu Province and Zhejiang Province) is focusing on the informatization of industry by introducing new technologies and promoting “indigenous innovations”. The growth and development of the ICT sector is a priority for the region.

In the 11th five year plan (2006-2010), East China calls for the wide application of information technologies in the economy, especially in the areas of finance, logistics, cultural industries and the manufacturing sector (automotive, machinery and shipping). In addition, they seek continued development in software, new electronic components, establishing and improving software development and testing platforms, wireless communication development platforms, industry clusters of next generation mobile communications, automotive electronics, digital audio/video and internet content.

2007 East China Key ICT Indicators

 

Shanghai

Jiangsu

Zhejiang

Anhui

ICT Revenues [2] (bn)

741.8

1222.1

457.3

47.8

ICT Export (US$,bn)

53.0

99.2

24.7

N/A

Internet subscribers

10.8m

6.7m

5.6m

N/A

Fixed-line subscribers

10.2m

32.2m

24.1m

14.9m

Fixed-line penetration rate

56.3%

42.7%

45.9%

24.5%

Mobile subscribers

17.8m

33.1m

35.3m

14.1m

Mobile phone penetration rate

97.9%

43.9%

70.2%

23.1%

Telecom service revenues (bn)

36.8

53.8

128.5

19.0

Source of information: Ministry of Industry and Information Technology, Shanghai Communication Administration, Jiangsu Communication Administration, Zhejiang Communication Administration and Anhui Communication Administration.

ICT strengths in East China are in the areas of digital media, integrated circuits (IC), mobile communication, and business application software. The East China region boasts many flagship companies (e.g. Shanda, Alibaba), quality SMEs and clusters of R&D centers.

Overseas investment, especially from Hong Kong, Taiwan, Japan and US, has been a very important factor for the development of the ICT sector in the Yangtze Delta region. Comparatively speaking, Canadian direct investment in this sector is much less active. The presence of Canadian companies in East China includes Nortel, Celestica and Corel. There are also a number of SMEs active in the area, such as Smart Technologies, PMC-Sierra and Maximizer, to name a few.

2. Market and sector challenges (strengths and weaknesses)

The ICT market is highly competitive with players from multinational giants to increasingly sophisticated local companies. Moreover, the current call for ‘indigenous innovations’ by the central government of China to prioritise developing home-grown know-how imposes barriers to the import of foreign products and technologies as companies seek to develop and use domestic technologies.

Compared with other regions of the country, East China is more prosperous and the government’s role is less influential, especially in Shanghai and Zhejiang, the latter being the home of the most dynamic private sector in the country. The economy in Jiangsuhas been driven by foreign investment, which is clustered in the southern part of the province.

The regulatory framework of the ICT sector is complicated in China. The major watchdog is the Ministry of Industry and Information Technology (MIIT). Its local branches in East China are the Shanghai Municipal Economic & Information Technology Commission, the Department of Information Industry inZhejiang,Jiangsu and Anhui. Other government authorities involved in the ICT sector, depending upon the sub-sector, could include Ministry of Science & Technology (MOST), Ministry of Public Security (MPS), General Administration of Press and Publication (GAPP), and State Administration of Radio, Film and Television (SARFT).

The intellectual property (IP) protection environment in China is improving but remains a concern, especially at the enforcement level. Companies interested in pursuing theChinamarket need to take the necessary measures to register and protect their intellectual property when operating in China and to consider market entry plans that minimize their exposure to potential IP violations.

3. Sub-sector identification

Opportunities exist in the following areas:

  • Digital media
  • Wireless Communication
  • Software

Digital Media

The Yangtze Delta is a cluster for digital game and animation.  The central government has identified twenty national animation industry bases, eleven of which are located in the region.  Five of the top ten online game operators are based in Shanghai, making up 54.8% of the total market share.

Game

Unlike North America, the game industry in China is dominated by online games. In 2007 the revenue of the online game industry reached RMB11.5bn (USD1.6bn). MMORPG is the most popular type of game in China.  Recent hot topics extend to online casual games, in-game advertising and web games. After decreasing for five years, the console game market in 2007 experienced a 13.1% increase, with sales revenue of RMB73.5m.

The top ten online game operators in China are as follows:

 

Market Share (%)
Q3 2007

City

Note

Shanda

19.9

Shanghai

Listed on NASDAQ

Netease

14.3

Guangzhou

Listed on NASDAQ

The9

12.2

Shanghai

Listed on NASDAQ

Giant

11.9

Shanghai

Listed on NYSE

Tencent

8.4

Shenzhen

Listed on SEHK

Perfect World

6.2

Beijing

Listed on NASDAQ

9You

5.9

Shanghai

Unlisted

DetDragon (Shanghai)

4.9

Shanghai

Listed on SEHK

Kingsoft

2.9

Beijing

Listed on SEHK

China.com

2.7

Beijing

Listed on SEHK

Source of information: Analysys International

Most game operators are also active game developers.  Eight of the top ten game developers in China coincide with the names listed (except for The 9 and China.com) in the table above.  Domestically-developed online games have dominated the market (65.1%) and realized an export revenue of USD $55m in 2007.  Major international game developers like Ubisoft and EA have also established studios in Shanghai.

The game industry in Shanghai has witnessed rapid growth in the game outsourcing service market.  By the end of 2007, there had been 88 game outsourcing companies in Shanghai, realizing annual sales revenue of RMB 320m. Large Taiwanese backed studios have been active in the market, such as XPEC, InterServ, and Winking.

Due to the relatively short history of the game industry and the expansion it has experienced, the industry has been suffering from a shortage of qualified and experienced workforce, especially senior-level developers and game designers. This could be a challenge to new comers who wish to hire skilled workers but it also generates business opportunities for training.

Animation

The animation industry in China has received extraordinary support from the government in terms of favourable policies and funding.  According to the policy set by the central government of all the animation programs broadcasted on television, at least 70% must be domestically produced, and from 17:00 to 20:00 only domestic animation or children’s programs may be broadcast.

Shanghai, Hangzhou, Suzhou, Wuxi and Changzhou are the major clusters for the animation industry in East China.  Companies in Shanghai and Hangzhou are more focused on original IP development, while Suzhou, Wuxi and Changzhou are providing animation outsourcing services.

Wireless Communication

While Beijing is the headquarters for telecom operators and major vendors like Huawei and ZTE are based in South China, the Yangtze Delta has a cluster of mobile communication R&D centers and is a manufacturing base for handsets and telecom systems.Shanghai,Nanjing (the capital city ofJiangsu Province) and Hangzhou (the capital city of Zhejiang Province) are home to wireless communications R&D centers, such as those of Huawei, ZTE, Nokia-Siemens and Motorola.

There are a handful of telecom vendors and handset manufactures based in the region, namely Alcatel Shanghai Bell (Shanghai), UTStarcom (Hangzhou), Eastcom (Hangzhou), Bird (Ningbo), Holley (Hangzhou), and Panda (Nanjing).  Big Taiwanese handset OEMs like Foxconn, BenQ, Arima, Compal and Inventec have all set up factories and/or R&D centers in East China cities like Shanghai, Suzhou, Hangzhou and Nanjing.

Yangtze Delta has established a complete industry chain of TD-SCDMA (China’s homegrown 3G standard) handsets from IC design to handset manufacturing.  The leading TD-SCDMA chip suppliers like Spreadtrum and Leadcore (subsidiary of Datang) are based in Shanghai. Bird, Holley, BenQ and UTStarcom have all obtained licenses to manufacture TD-SCDMA handsets.

Canadian SMEs with niche technologies will find it difficult to access the large telecom operators, who are typically interested in total solutions.  System integrators and vendors are important partners to work with in order to tap into the Chinese market.

Software

Jiangsu, Shanghai and Zhejiang are among the top five provinces/cities in terms of software industry revenues in 2007.

Software Industry in Yangtze Delta (2007)

 

Shanghai

Jiangsu

Zhejiang

Revenues (RMB bn)

80.1

83.4

35.4

Export (USD bn)

1.2

1.7

0.60

# of companies

1200+

1255

1000+

# of workers

150,000

255,000

50,000+

Source of information: Shanghai Municipal Economic & Information Technology Commission, Dept. of Information Industry of Zhejiang Province and Dept. of Information Industry of Jiangsu Province.

The three regions differ in their strengths in the software industry:

  • Shanghai : Linux-based software, business application software for financial institutions, e-Government and education.
  • Jiangsu: Linux-based operation systems, business application software for the power and telecom industries, making up market share of 50% and 35% respectively.
  • Zhejiang: business application software for financial institutions, e-commerce, textile and health industries.

The Yangtze Delta region is devoted to upgrading traditional industries by applying information technologies, which has created good opportunities for business application software suppliers.  There have been a number of Canadian software companies active in the region, such as Corel, Descartes and Maximizer.

Major cities in the region have all identified outsourcing services as their next area of focus for the development of their software industry.  Shanghai, Nanjing and Hangzhou are among the ten ‘Service Outsourcing Base Cities’ selected by the Ministry of Commerce (MOFCOM) in 2006.

Canadian Government Contacts

Foreign Affairs and International Trade Canada
North Asia Commercial Relations (GPC)
Email: jin.leong@international.gc.ca
Website: tradecommissioner.gc.ca

Industry Canada (IC)
Spectrum, Information Technology
Telecommunications Sector
Email: corman.christopher@ic.gc.ca
Website: http://strategis.gc.ca

Export Development Canada (EDC)
Email: wkan@edc.ca
Email: hui.wang@international.gc.ca
Website: http://www.edc.ca

Embassy of Canada in Beijing
Email: heidi.wang@international.gc.ca
Website: tradecommissioner.gc.ca/cn

Email: james.kim@international.gc.ca
Website: tradecommissioner.gc.ca/cn

Consulate General of Canada in Shanghai
Email: sandra.jiang@international.gc.ca
Website: tradecommissioner.gc.ca/cn

Email: robert.mccubbing@international.gc.ca
Website: tradecommissioner.gc.ca/cn

Consulate General of Canada in Guangzhou
Email: cathy.yao@international.gc.ca
Website: http://tradecommissioner.gc.ca/cn

Consulate General of Canadain Hong Kong
Email: eunice.wong@international.gc.ca
Website: http://tradecommissioner.gc.ca/cn

Consulate of Canada in Chongqing
Email: peter.liao@international.gc.ca
Website: http://tradecommissioner.gc.ca/cn

Useful Internet Sites

Country:

Province/City:

Industrial Associations:

[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] All monetary amounts are expressed in RMB, unless otherwise indicated. Foreign exchange rate is based on CND1=RMB7.27 (Bank of Canada, Dec. 14, 07).

Source: The Canadian Trade Commissioner Service

Canada China Business Council (CCBC)