Over the last two decades, China’s IT industry has experienced impressive growth and has become a key industry in the country’s overall economy.
In the current 5-year plan, China is planning to make IT as one of the seven strategic industries that will help the country become a world-class, innovation driven, and high-tech society, moving from a cheap-labor manufacturing outsourcing.
Over the past years, China has already seen creative and innovative developments in the sector, stimulated by foreign investors and many (small) domestic private players.
The four sub-sectors of the Chinese IT industry
China’s IT industry is large and complex, covering a wide range of product, companies, and subsectors. The country is considered the manufacturing hub of the world’s most electronics.
Globally, China has the most internet users. Today it has above 500 million users, rising from a mere 22 million in 2000. There are also a billion users of mobile phones, and users of social network and smartphones continue to rise exponentially.
In terms of spending, China’s IT market is the fourth-largest market around the globe, after the US, Japan, and Germany. According Business Monitor International, the country has invested a total of 104.5 billion for the industry. Currently, it ranks as second largest software-outsourcing destination next to India. The IT industry of China is expected to grow by 15 per cent annually over the next five years.
The four main areas of the industry are:
- Telecom, but this subsector is a “restricted” industry. Foreign participation is only allowed through Joint Ventures with dominant Chinese players—often large SOEs or private companies that have strong ties with the government.
- Hardware, being a “mature” market, the hardware market is “not restricted.” The hardware market has small margins and constant pressure on prices and profits.
- Software, and
- IT services.
The last to sectors are those where also foreign companies can find their way, although it is advised to find a Chinese partner to work with.
China internet statistics and IT industry growth
China is the country with the biggest population in the whole world. With an estimated 1.3 billion people, China is a nation with large consumer consumption rates. Market research shows immense opportunities for foreign players to establish almost any type of business in the country.
China internet statistics for 2016
With the increasing number in China’s population, its IT industry is growing and internet usage statistics are proportionately high. Statistics and market research show that at the beginning of 2016 China had over 600 million internet users. This has increased in the last few months by around one hundred million, which nearly gives us a total of 700 million internet users as of today. Latest statistics also confirm that the overall internet penetration in the country is 48.8%.
In one day, businesses in China that connect to consumers using online promotions and e-selling can earn over a million US dollars. E-commerce has become more than just a trend; it has become a lifestyle for most people in the country. After all, it offers convenience, added to similar purchase options as most shops and marketplaces.
Segregation of internet users
The internet users in China can be segregated into different groups: age, gender, location, educational background, income, and occupation.
- The most number of users are within the age group of 10-29, ranging from pre-teens to young adults. Surveys also show that males use the internet more than females.
- Urban areas are teeming with internet users compared to the lesser population of the rural areas. Urban areas have higher internet demand than rural areas.
- Internet users in China with higher educational degrees have the lesser use of the internet compared to those who have only finished Junior High School. The number of internet users declines as an individual in China attains a richer and more elite educational background.
- The number of users in the student group differs from the occupation groups. Students have more time to browse the internet, thus giving them the highest rate in internet usage. However, people who earn 3000 - 5000 Yuan per month are using the internet more than those with lesser incomes (including students).
Popular Chinese websites and/or applications
According to Erik Crouch, “The country is a downloading, WeChatting, ecommercing powerhouse.” The huge number of internet users in the country demand more Chinese websites and applications for browsing and online buying.
Here are some interesting statistics related to application usage in China:
- Didi Kuaidi is an alternative application for Grab a Cab. In less than a minute, there are roughly 1,388 cabs hailed and 2,777 private cars hired.
- About 395,000 log-in on WeChat in a minute.
- More or less 625, 000 Youku Tudou videos are watched in 60 seconds. (Youko Tudou is the most watched video site in China).
- Every 60 seconds, around 700 people buy from online shops such as Alibaba.
- Around 1.1 million dollars is earned every second via mobile buying. During Single’s Day, that number multiplied nine times (ie: USD 9 million).
Thus, China’s e-commerce and internet marketing provide various opportunities for foreign entrepreneurs to invest in. In the years to come, with continual advancement in technology, we see further development and opportunities in this sector.
Opportunities in IT in China
China is aiming to become an innovative leader in the field of IT. Today’s hot topics in China include next-generation mobile communications, next-generation Internet equipment, smart devices, Internet of Things, cloud computing, and new displays. In view of this, China is welcoming of foreign investors that have expertise in this field and have cutting-edge technology.
Large investments have already been thrown into the IT industry of China for the development of IT technologies. For instance, in a recent report by KPMG, China Mobile plans to spend USD 52 billion to expand cloud services. The development in the IT industry can also serve as a strong foundation for other sectors such as finance, healthcare, logistics, etc.—all of which are willing to pay premium prices for high quality products.
Still, China has to make sure that it educates its Chinese clients before they can fully embrace the IT solutions that foreign companies are offering.
China's software industry and IT services per region
China is keen on developing its IT industry and aims to become a hub for IT outsourcing. China is now at 36 in the rankings by The Global Information Technology Report, released by World Economic Forum.
To achieve this, the Chinese government has designated 20 cities as China Outsourcing Model Cities including Beijing, Shanghai, Dalian, Shenzhen, Tianjin, Hangzhou and Wuxi. These cities are home to the major outsourcing companies and IT services.
China is leveraging its low labor cost, large supply of human resources and widespread high-quality telecommunications infrastructure. Because of the rising labor cost, particularly in the China Outsourcing Model Cities, there will be a high tendency that outsourcing will focus further on the more high-end of the market.
Guangdong is an important manufacturing center of electronic and information products, with industry giants Huawei and Foxcom.
In a recent report by Reuters, Guangdong Shenglu Telecommunication Tech Co Ltd plans to issue over 50 million new shares. It will also pay 52.50 mln yuan cash to 34 individuals for 100 pct stake in a Nanjing-based technology company. The transaction costs 750 million yuan. The proceeds will be used to acquire stake and business integration.
Jiangsu province gives focus on ICT as one of its ICT industry. The growth of the IT industry in the province has been remarkable. The capital of Nanjing is one of the top destinations for software development and service outsourcing in China. Since Nanjing is home to 3 academic centers in China, it enjoys the benefits of a huge young and educated workforce.
As Shanghai aims to become a world-class financial and shipping center, it will need to invest in areas such as energy-efficient data centers, cloud computing, mobile Internet, advanced software and supply management systems.
ICT development zones and industry parks are situated in Pudong District and Yangpu District. Shanghai Cloud Computing Industry Base—established in Shanghai Shibei HighTech Park in Zhabei District—will build the first domestic commercial public platform of service based on cloud computing.
China Ministry of Industry and Information has honored Capital Jinan as “China’s second Software City” after Nanjing in 2011. Outsourcing, software development, and cloud computing—these are Jinan’s strong ICT subsectors.
One of Jinan’s advantages is its pool of talents build around 50,000 graduates from its universities and institutes in the field of software development, computer technology, and finance.
Compared to Beijing and Shanghai, costs are a third lower in Shandong. Also, employee loyalty in Shandong is less than 5%, which is lowest in China, compared to 25% nationwide.
Hangzhou, the capital of Zhejiang Province, has key drivers of economic growth in creative industry, e-commerce, software, IT services and Internet of Things (“IOT”) industry. Serving as the “Capital of e-Commerce” in China, Zhejiang accounts for more than half of the total revenue for e-commerce services in the country. For instance, Chinese online shopping giant Taobao has processed RMB 20.83 billion of payment in 2009, making it a giant of retail platform in Asia.
Tips for investing in China
There are some points that prospecting investors in China should be mindful of:
- First, they should focus on small niches where they can leverage their technological expertise.
- Secondly, the company should make sure that knowledge and solutions should be adjusted to the unique needs and characteristics of the local market.
- Third, IT services are required in various geographical locations by many enterprises to provide reliable services throughout China.
- Lastly, a brand name that will be internationally recognized can be a significant aspect in the final decision for Chinese clients.
E-commerce study mission to Beijing and Shenzhen
In September 2015, Alliance experts successfully co-organized a delegation of 30 small and medium-sized Singapore enterprises for a China E-commerce Study Mission.
In this 5-day study trip, we visited 11 companies which are either in E-commerce platforms or E-commerce service providers, this includes, Tencent, GOME, SF Express, Hercules Logistics, Chinese Wangku, etc. All visited companies warmly welcomed the delegation, and generously shared their experience on E-commerce, while communicating and discussing.
Wang Haibo, CEO of Chinese Wangku, introduced us the development history & strategic layout of Chinese Wangku. In the 16 years of history, Chinese Wangku firmly grasped the Internet and e-commerce era of high-speed development opportunities, persist in serving small and medium-sized enterprises, continue to innovation based on customer and market demand, finally win the trust of customer and and markets, and is becoming leading domestic e-commerce platform based on SKU supply chain in China. This kind of e-commerce business promotes China's B2B e-commerce industry to a new era. Read more about Chinese Wangku official report here and here.
Yanghui, General Manager of E-guan Education Internet+ Consulting Service Center, shared several topics on China's e-commerce development, enterprise transformation for Internet, and talent training with our delegates. Delegates from Singapore expresses their interest in E-guan Education and the speech of Mr. Yang can provide them some references and guidance when Singapore enterprise enter into China market. Read more about E-guan official report here.
Hercules Logistics visit
During the visiting in Hercules Logistics, Vice President of logistics headquarters Contract Kuo Chiung Yao briefly introduced their corporate culture, development history of Hercules Logistics, business model, service advantages as well as partners, both sides exchanged their views on the import of cross-border e-bonded mode, retail exchange compartment, cold-chain, supply chain finance and LLP, etc. The delegation also visited the cross-border E-Commerce showroom. Read more about Hercules Logistics official report here.