Electronics Seen Benefiting as China's GDP Doubles

China wants to double its GDP in the next 10 years, and, based on projections by researcher IDC, it actually has a good chance of doing this and sparking strong growth in many of its economic sectors, including the information and communications technology (ICT) market.

If China meets the goals spelled out at the 18th China Communist Party Congress earlier this month, its economy would maintain a strong upper-single-digit growth pace over the next 10 years, and the associated higher purchasing power will ignite strong demand for many of the products sold by electronics and other high-tech companies, IDC said in a report.

That's a dream Western electronics companies have nurtured for about two decades since they began setting up factories in China and later followed this up with a wave of outsourcing contracts to local companies as well as transplanted contract manufacturers. Numerous problems have dashed the hopes of strong sales growth in China for many companies. The challenges have included intellectual property theft and the fact most Chinese consumers cannot afford the high-end mobile phones, flat screen TVs, personal computers, and other equipment manufactured in the country by Western OEMs.

That's about to change. The Chinese government is itself increasing infrastructure spending sharply and plans to accelerate this over the next decade in key sectors. Many of the services it wants to introduce would be provided free to the citizens, the government said in its Twelfth Five-Year Plan approved at the Communist Party Congress. Areas being targeted include cultural services, telecommunications infrastructure, roads, medical services, and industrial production. Many local Chinese communities are also planning to increase investment in smart cities at a cost of approximately 1.1 trillion RMB (US$176.6 billion).

The effects of huge capital spending like this will reverberate throughout the Chinese economy and positively influence consumer purchases of electronic equipment, according to IDC. The research company said further in its report:

China is expected to see a boom in the industrial software and ICT solutions sector. Fueling the growth further will be the country's urbanization rate, which is projected to exceed 60% in the next 10 years, leading to the fast growth of urban IT infrastructure and services.

The increased demand for IT support for agricultural modernization will significantly boost the steady development of broadband infrastructure construction, comprehensive information service stations, grassroots-level e-governance solutions, Internet of things technology, and personal terminal devices (PC, tablet, smartphone) in rural areas.

Companies in the electronics industry also stand to benefit from non-traditional programs to be pursued by the Chinese government. Perhaps realizing that the giddy and unchecked consumption of its natural resources could inflict environmental, health, and other economic hazards on the country, China is introducing and enforcing a series of tough conservation policies, many of which were set out in the latest Five-Year Plan, which would guide developmental activities through 2015. In the area of what the ruling party called "Ecological Civilization," China plans to pursue the following six goals, as reported by IDC:

1. Conserve resources and bring about fundamental changes in the way resources are used
2. Strengthen the conservation process management
3. Greatly cut consumption intensity of energy, water and land to increase utilization rate and economic benefits
4. Promote energy production and consumption reform to support low carbon, new energy and renewable energy industry to safeguard national energy security
5. Strengthen water and land protection and overall water consumption management to build a water conservative society
6. Promote recycling economy to accelerate the reduction and recycling in production, circulation and consumption

The opportunities for local and foreign high-tech equipment manufacturers are, immense but so are the challenges. Naturally, local companies will have an edge in segments considered critical to China's security, but many other economic sectors will be open to all bidders. Says Lianfeng Wu, associate VP of IDC China, in the report:

To seize the opportunities for ICT market brought by the 18th Party Congress, IT companies should carefully study and fully understand the Report and China's future macro-economic policies in order to develop arrangements and plans for market entry timing, core capacity building, and new competition-and-cooperation strategies development.

For the already competitive IT companies, it is better to enter the market as soon as possible. In terms of competitive capacity building, the IT companies should put great emphasis on the Third Platform, based on cloud computing, mobile technology, social networking, and big data. As for competition-and-cooperation strategy, comprehensive considerations must be given to the significant value of the eco-system of the whole ICT industry chain.