China IT spending is forecast to reach US$105.4bn in 2011, increasing to US$179.6bn by 2015. An expansion in consumer credit and a commitment to modernisation in sectors such as education, healthcare and manufacturing will help sustain market expansion.
Total Chinese IT spending is projected to grow at a CAGR of 14% over the five-year forecast period. Spending growth is also forecast at around 14% in 2011, which represents a slight slowdown compared with 2010. Rural areas and lower-tier cities and towns will be among the fastest growing segment of the PC market. Multinational vendors will receive a boost in 2011 from a 50% increase in import tariffs on some electronics products, such as laptops.
Several factors, including a vast potential rural market, government spending and gradual modernisation in sectors such as education, healthcare and manufacturing will help sustain market growth. Growing interest in cloud computing will drive vendor investment and attract new players into the market and will be further stimulated by the 2010 launch of government pilot programmes.
Industry Developments
In January 2011, the government introduced a 50% cut in import tariffs on some electronics products, such as laptops. The Ministry of Finance announced that the import tariff on computers, as well as other electronics devices such as digital cameras, would fall from 20% to 10% as of January 27 2011. The tax move was presented as helping China fulfil its promise to the WTO.
In 2010, the Chinese government rolled out the second phase of a major household electronics goods subsidy programme, designed to increase the rural population's usage of computers and other consumer electronics devices and household appliances. The government partnered with household electrical appliances manufacturers, appliance retailers and banks in the programme.
The Chinese government has established cloud computing service development pilots in a number of cities. Beijing, Shanghai, Shenzhen, Hangzhou and Wuxi were named as the five pilot sites for the development work. In a speech in June 2010, Chinese President Hu Jintao described the rapid development of cloud computing as 'a powerful tool.'
Competitive Landscape
PC vendor Acer appeared to have made a significant breakthrough in the Chinese market as a result of its 2010 tie-up with Chinese PC vendor Founder. Acer acquired Founder's PC business unit in August 2010, and in Q111 the company's local shipments of notebooks computers more than doubled compared with the same period of the previous year. Acer's move is particularly targeted at entry into the lower tier cities and towns, which are currently the fastest growing segment of the market.
In May 2011, enterprise software leader SAP signed a deal with leading telecoms company China Telecom. Under the terms of the agreement, China Telecom will sell SAP's on-demand BusinessByDesign cloud solution for midsize companies. SAP hopes that the deal will provide it access to a Chinese market opportunity of more than 1mn midsize companies.
The cloud computing opportunity is also a growing focus for hardware vendors. In 2010, Lenovo launched a mobile-focused cloud computing strategy, targeted at the business segment. Meanwhile, Dell announced plans to build two datacentres in China and hopes to leverage its 2009 purchase of IT services leader Perot Systems Corp.
Computer Sales
China's computer hardware sales are projected at US$70bn in 2011 and are forecast to reach around US$114bn in 2015. PC shipments are expected to be more than 70mn in 2011, with double-digit year-onyear growth. The rollout of 3G mobile services by China's mobile telecoms network operators will stimulate netbook sales, while government subsidy programmes will boost demand in the underpenetrated rural areas.
BMI forecasts a computer hardware CAGR for the 2011-2015 period of around 13%, with small and medium-sized enterprises (SMEs), smaller towns and rural areas driving growth, along with replacement of desktops with notebooks. Vendors face the challenges of geography and channel underdevelopment in China's enormous rural hinterland, where villages are often widely dispersed and far from the nearest large town. Vendors such as Lenovo and HP have been aggressively expanding their sales networks outside China's largest cities.
Software
BMI projects the Chinese software market will grow at a CAGR of 15% over the 2011-2015 period. The total value of the Chinese software market is forecast to reach US$13.2bn in 2011, up from US$11.1bn the previous year.
As a rule, Chinese enterprises tend not to pay enough attention to software. However, there is a growing trend for companies to seek greater efficiency by using IT to improve productivity and lower costs, including labour costs. The hosted application model may already account for 20-25% of China's software revenues.
IT Services
IT services has been the fastest growing segment of the IT market in recent years and is projected to achieve a sector CAGR of 16% between 2011 and 2015. Spending is projected to grow as banks, telecoms operators and manufacturers invest to meet the challenges posed by growing demand for their services.
One potential demand driver will be organisations looking for help in using efficiencies from cloud computing. In the telecoms sector, the launch of 3G services and associated network rollouts will generate spending.
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