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(Last updated: 11 Jan 2008)
Trends and opportunities
The market
China has experienced rapid growth within the information and communications technology (ICT) industry over the past decade, and now plays a leading role in China’s economic development.
As a result of China’s ‘opening up’ policy and path of economic reform, China’s electronic communications industry has grown at three times the rate of GDP growth. In 2006, China’s electronic communications industry revenue reached RMB475 billion.
The total value of foreign trade reached US$651.7 billion representing over 15 per cent of the global electronics trade, with the output of many electronic products ranked first worldwide. These electronics products include:
- colour TVs
- mobile phone handsets
- computers
- electronic watches
- calculators
- DVDs
China’s accession into the World Trade Organization (WTO) provided a transitional period for opening up its telecom sector which lasted until November 2007. Consequently, this has assisted China to develop one of the largest open telecom markets in the world. The Value Added Services (VAS) sector is expected to contribute to this growth, as one of the hottest market entry sectors for foreign ICT companies.
Through the Ministry of Information Industry (MII), the Chinese Government administers foreign direct investment into the telecommunications sector. This includes basic infrastructure and value added services, however, with various restrictions on foreign ownership levels. From 1 December 2007, a new set of Categories of Foreign Investment Industry Guidance 2007 Amended Version has been implemented, superseding the previous version issued on 30 November 2004, and providing new levels of guidance on foreign direct investment in the various industry sectors.
To ensure China’s telecommunications market operates in a fair, transparent and effective competitive environment, China’s first Telecommunications Law has been drafted and is currently undergoing a process of public consultation before being enacted. This should provide further guidance and protection to both investors and operators, in addition to the various regulations currently in place.
With China entering its 11th Five Year Plan period, ICT has also moved from 'enabling and promoting' to 'strengthening industry integration and indigenous innovations'. The key focuses are to:
- Continue increasing overall integrated ICT service levels
- Increase and improve the development of ICT infrastructure
- Strengthen the indigenous innovation in core industries
- Focus on incubating strategic industry clusters
- Proactively promote the integrated development of all ICT sectors
- Strengthen the modernisation of post services
- Strengthen the administration of radio communications
- Increase the supportive capability of ICT infrastructure to the national economy
By 2010, the targeted penetration levels for fixed telecommunication in China is anticipated to reach 30 per cent of its population to one billion subscribers in operation (SIO), and 45 per cent penetration in mobile communications to 600 million SIOs. Internet users are anticipated to reach 200 million with 15 per cent penetration.
Telecommunications
Since the first wireless mobile phone base station was installed on 18 November 1987, China reached 531.4 million mobile SIOs at the end of October 2007. Therefore, China has the highest number of mobile phone subscribers in the world. The vast number of SIOs also generated 483.7 billion short message services (SMS). Due to China’s large population, mobile penetration in China is still considered low at 39.9 per cent when compared with most developed countries. This presents substantial growth opportunities for companies within the China market.
Fixed communications grew slightly lower than mobile communications with a total of 370 million SIOs, representing a 28.3 per cent penetration rate.
China has over 22,000 registered companies providing Value Added Services to the telecom sector. There are six major telecommunications operators in China:
- China Telecom
- China Mobile
- China Satellite Company
- China Unicom
- China Netcom
- China Railway Communications
Software and system integration
In 2006, the size of China’s domestic software market reached RMB480 billion. The total number of registered software companies increased to 15,723 with over 1.29 million people employed in the software industry. There were over 35 companies with a turnover exceeding RMB1 billion, and 51 companies with turnover in the range of RMB0.5–1 billion. Furthermore, more than 80 software companies had over 1,000 employees.
There are currently 38 companies with CMM5 (Capability Maturity Model For Software) certifications, the highest level of an internationally recognized certification program for software companies. In addition, 23 companies achieved CMM4 certifications and over 200 companies were awarded CMM3 certifications. The increasing number of Chinese software companies seeking and achieving CMM certification demonstrates their enhanced software development capabilities and overall product quality to compete in the global market.
Internet
Since China sent out the first email 'Across the Great Wall we can reach every corner in the world' on 20 September 1987, the diffusion of the Internet in China has grown in parallel with the development and expansion of the overall telecom infrastructure. China has become the world’s second largest Internet user country with an estimated 162 million users behind the US with 211 million users. In addition, at the end of June 2007, China had 67 million Internet connected computers and over 1.3 million websites. The total bandwidth to the world reached 312,346Mbps with annual growth rate of 45.8 per cent.
Although China’s Internet industry has achieved significant growth, the penetration is still very low at 12.3 per cent, as compared with the global average of 17.6 per cent. There is clear 'unequitable' access to the Internet between urban and rural areas with 21.6 per cent as compared to 5.1 per cent respectively.
ADSL, dial-Up and wireless (including mobile phone access) are the three key access methods of accessing the Internet in China. Broadband SIOs have grown very quickly. As at December 2007, broadband users reached 122 million, the largest user country in the world, with a penetration rate of 17.5 per cent. In 2007, 30 per cent of the new broadband users were from rural areas. In addition, there are also 20.2 million dial-Up users.
The key applications for Internet users in China are searching for news, instant messaging, and entertainment (music, video and games). There has been a growing trend of e-commerce related activities including net-shopping, travel booking, online stock market trading and banking. It is expected e-commerce related applications and services will become one of the key growth areas in the future.
Although there has been increasing trend of Foreign Direct Investment (FDI) in Internet- related infrastructure, applications and services such as Internet Service Providers (ISPs), Application Service Provider (ASPs), and Internet Content Provider (ICPs) are yet to open up to foreign providers, and there are strict content management and approval processes in place to ensure that the Internet is used to enhance social responsibility and harmony.
The challenges facing China’s Internet industry include:
- Equitable access to the Internet between urban and rural areas to break the 'digital divide'.
- Level of information and technology knowledge among small to medium enterprises.
- Overall quality and applications of the Internet, to improve the productivity and be more competitive on the global market.
- Integration of information and communication technologies within all industry sectors.
Opportunities
The development of China’s ICT industry provides opportunities in a number of areas, which include the following:
- Telecommunications infrastructure
- 3G/4G wireless communications
- IP based technologies
- Rural telecommunications
- Network integration and billing
- Value Added Services
- e-Learning
- Entertainment
- Mobile applications
- E-Commerce
- Online payment and mobile payment
- e-Security
- Integrated logistics application and management
- Industry application
- Telematics
- Remote metering
- Geo-spatial application
- Environment and clean technology applications
- Finance and banking
- Security
- Digital content
- New Technologies and applications and materials
- IPTV
- New digital audio systems
- Radio Frequency Identification (RFID)
- Nanotechnologies
- Energy efficiency materials
Australia has over 900 companies in the ICT sector exporting their technologies and services globally, some of whom have already entered the China market.
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