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China’s IT Market: More Room to Grow

Despite some international economic softness, China's IT market will remain robust for 2013, according to several reports.

Although {complink 7329|Forrester Research Inc.} has revised its projections downward for next year, China's IT growth will still hit double digits and will stay one of the fastest growing markets in the world.

Recently, Forrester revised its 2012 growth forecast down from 13 percent in January 2012 to 10 percent (measured in local currency). With $105 billion in annual technology spending, China ranks third in the world after the US and Japan. “However, per-capita IT spending in China is only 4 percent of Japan's and 3 percent of the US's — highlighting the long-term potential in the country, ” according to Forrester's Bryan Wang's blog post.

By area, computer equipment and peripherals, which represents the largest segment for tech spending in China, will grow 8 percent this year and increase by 13 percent in the coming year. Wang says that while Chinese customers continue spending on more hardware, there's momentum in the country around cloud computing, which could “drive significant new data center investments from telecom operators and local governments, with a positive impact on technology vendors selling servers, storage, networking, and other relevant technologies.”

Also, new high-speed railway projects in China — to the tune of $159 billion worth of pending projects restarted in 2012's second and third quarters — will mean large-scale investments in things like control systems, new datacenters, train cars, stations, and ticketing systems, Wang writes.

Other segments that could see a boost are in healthcare, K-12 education, and banking, given some of the reforms slated countrywide.

Another firm, Gartner, says high IT spending could also spark adoption of other new technologies in the next decade. Having seen IT spending by Chinese end-users, mainly organizations and consumers, increase 14 percent in 2011 (compared to about 5 percent in the US), Gartner expects to see IT spending by Chinese end users to rise from $277 billion in 2011 to $312 billion in 2012, up about 12.6 percent. Jim Longwood, research vice president at Gartner, said:

    Despite the worsening impact of the global economic downturn affecting both local and multinational companies in China in the first half of 2012, the Chinese government's 12th Five Year Plan, which began in 2011, will continue to influence the IT initiatives of Chinese enterprises through 2015. The consumerization of IT will also continue to have a strong impact in China, which has the world's largest number of Internet users and mobile handsets, the largest PC market, and the second largest hardware market.

Longwood added that the high growth in IT spending — especially for hardware — is typical of emerging economies. However, now that people are starting to see the tangible value of software packages, this could spark more software buys, outsourcing of IT relationships, and widespread implementation of ERP and supply chain execution platforms.

Like Forrester, Gartner sees personal cloud and platform-as-a-service offerings fueling new demand from mass-market consumer-driven technologies, and general cloud computing could pave the way for more open-source software, shared services, smart cities, and green IT/sustainability development.

So even as China experiences softness, like many other countries battling the Great Recession, it seems that the IT sector will still be a cloud with some silver lining.

12 comments on “China’s IT Market: More Room to Grow

  1. Daniel
    November 6, 2012

    Jennifer, for last couple of years we are hearing that China is a global leader in hardware industry and India in IT industry. In many ways, MNC companies tried to explore for mutual collaboration with these two countries, but failed due to various trade policy difference between India and China. Now both of the countries have their own plans to strengthen the associated weaker sector (Hardware/software). Recently India has announced the new Hardware & Electronic policy, to attract more hardware companies/ OEM for investment and research. In such a situation, do you think that Chinas IT growth will be a threat for Indian Market?

  2. Daniel
    November 6, 2012

    Gennifer, Chinese IT sector was lagging because of the language problem; they are well versed with their local languages, but not with English. That's the main reason BPO, ITES, call center business are not flourished in Chinese markets. So if IT sector is growing means, more Chinese people are learning English for doing works related to coding and various ITES.

  3. FLYINGSCOT
    November 7, 2012

    Amazing to think China's IT spendng is only a few percentage points of the USA or Japan.  This represents a huge opportunity for suppliers but I fear much of that will only be for Chinese companies.

  4. Jennifer Baljko
    November 7, 2012

    Jacob – As a rule, I assume in a global economy, all countries are now competing with each other for more MNC investment. What both India and China have going for them, though, is that they each have massive domestic markets to serve and and plenty of local companies to support, oo.

     

  5. Jennifer Baljko
    November 7, 2012

    Jacob – I'm not sure about the English levels in China… haven't looked into any recent data outling improvement in that area. But you raise an interesting point and I wouldn't be surprised if China does encourage more English language development to effectively compete on a broader interantional basis.

  6. Barbara Jorgensen
    November 7, 2012

    Based on those numbers it sounds like China has a lot of room to grow. Something competing countries should look out for: China will no doubt adopt the latest technologies while the West is waiting for the money to upgrade its systems. It could lead to another competitive advantage for China.

  7. Jennifer Baljko
    November 7, 2012

    Flying_Scot… right, maybe initially it will serve the local market… but just look at how quickly a company like Lenovo — a Chinese PC maker — has skyrocketed ahead of its rivals after buying IBM's computer dividson and has developed a worldwide brand that is well-liked. Might just be a matter of time before we see more big name IT companies coming out of there.

  8. bolaji ojo
    November 7, 2012

    What? Were we expecting Western companies to continue to dominate global commerce forever? This was bound to happen. We have to share the cake now.

  9. prabhakar_deosthali
    November 8, 2012

    With increasing awareness about the importance of learning English language among the Chinese, especially after the Beijing Olympics, the day is not far when China starts eating the Software Pie and take it away from India.

    So beware Indian IT software companies ! your neighbor is going to take over your business

  10. Daniel
    November 9, 2012

    Prabhakar, exactly. I read from a leading business magazine that some discussion had happened in similar direction, at recently held NASCOM workshop. Due to lack of English speaking/knowledgeable person they are lagging in IT & software industry.

  11. Daniel
    November 9, 2012

    Barbara, in IT industry there are lots of room for growth in China. But I don't know whether MNC companies will prefer China because now a day's China is not attractive like those olden days. Wages are gone up and recent attacks against Japanese companies, human rights activities etc are some of the black marks.

  12. Daniel
    November 9, 2012

    Jennifer for India the massive local market has a great advantage in terms of cunsumerization. But in China it’s very difficult for MNC to find out a local market to sell their products. Chinese government is keen to promote domestic products in local markets. Majority of products from Chinese MNC’s are exporting to other countries.

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