China is Not a Threat...

An IT industry that is three times the size of India’s and projected to

stay that way for the next three years. A small IT services sector but projected

to be larger than India’s by 2005. A small packaged software industry that is

still nearly four times India’s…. Nasscom’s recent report on the Chinese

IT industry is a bit of a mixed bag. Releasing its preliminary findings on the

Chinese IT market in Delhi last month, Nasscom chairman Phiroz Vandrewala said,

"China does not pose an immediate threat to the Indian software and

services industry as China’s software industry is currently very focused on

catering to its domestic IT market."

At the macroeconomic level, Nasscom says China remains one of the

fastest-growing economies in the world. There are, however, significant and

potentially dangerous downsides–high levels of corruption, inadequate pension

funding, a large percentage of non-performing assets at Chinese banks (some

sources put that figure at as high as 43%) and the possibility of industrial

unrest. There are other issues–including the persistent charge that the Middle

Kingdom routinely hides or slurs over its economic indicators. Assuming however

that China does manage to deal with these issues–which even its many critics

say it is capable of doing–what does the microeconomic situation in the

Chinese IT industry look like?

The China advantage



Nasscom V-P Sunil Mehta spent nearly three weeks in China collecting facts

from varied sources including market research companies like IDC and Gartner,

Chinese universities and government officials and the Chinese industry.

According to the report, ICT indicators like PC population, number of Internet

users, fixed and mobile phones and bandwidth put China clearly ahead of India

(see box). The Chinese domestic IT industry continues to outperform India on all

major indices for 2001 and according to Nasscom will continue to do so till 2005

(see table). Nasscom estimates that along with its hardware sector, China’s IT

services industry is expected to grow at 50% per annum for the next three years.

Traditionally, Chinese companies have been unwilling to pay up separately for

these services which have therefore come bundled with the hardware. That

situation is however changing and combined with strong growth in various

verticals including banking and telecom, this sector should pick up quickly in

the near future.

According to the study, China compared very well with India in some key areas

- government investment in education, R&D, infrastructure and venture

capital for IT start-ups. Chinese government policy too has been carefully

formulated to encourage the growth of the domestic sector. For instance, product

licenses and limited market access is allowed to foreign firms on conditions

that include transfer of technology and alliances with local companies. Even so,

a domestic sale of such companies is limited to a certain percentage of their

exports.

Domestic firms on the other hand get vigorous government support including,

transfer of technology from government funded R&D institutions and a

preferential policy in large IT contracts by the government or related

institutions.

Sarita Rani,In Bangalore