China market surges forward

An extensive recent report about the information and communication technology market in China shows for example that business models that appeal to other markets seem to be applicable to the Chinese market as well.

Tuesday, 19 July, 2005

A new report aims to provide relevant information about the Chinese ICT market.

The report was prepared by Swedish consultancy firm Spintrack for the International Finance Corporation (IFC), a member of the World Bank Group. It finances and provides advice for private-sector ventures and projects in developing countries. The IFC has invested USD 1.8 billion in China over the past 15 years.

Björn Söderberg at Spintrack says the report aims to provide relevant information for information and communications technology (ICT) companies.

"China has gone through rapid development in the ICT field and the report identifies and analyses the most important parts of it. To get a good grip on the market we interviewed more than 100 companies. The demographic differences between the eastern and the western parts of China are still great and the report focuses on the more developed eastern part of China."
The report covers the following areas:

Infrastructure and software

Telecom equipment

The Chinese IC industry and "fab-less" chip design

The Chinese software industry

Security services

Applications

Mobile data

Online gaming

E-commerce

Digital media applications

Outsourcing

Software outsourcing and IT services

Handset design in China.

The IFC identified these focus areas as strategically important. The report also summarizes relevant government bodies and their key functions.

SMS and gaming

The report shows that gaming and SMS services are among the telecoms offerings facing strong demand today. Gaming is particularly popular these days in China, including both fixed-line and mobile services. Some servers host up to 1 million gamers at the same time, Söderberg says.

The huge scale of this market also impressed Söderberg many times as he prepared the report. This is of course why so many companies are interested in investing in China. In 2004, venture capitalists invested USD 1.269 billion in 253 mainland or mainland-related companies research firm Zero2IPO reports. The number of deals was up 43 percent from 2003, and the funds invested increased 28 percent from the previous year.

When it comes to business models for telecoms services, Söderberg says there were few or no differences from other markets: models that appeal to other markets seem to be applicable to the Chinese market as well. But once again the volumes make the difference. Content providers might also find it difficult to establish themselves due to tough regulations for content, which affect all channels.

The report shows that the mobile subscriber base has now surpassed the fixed-line subscriber base, with fixed-line penetration of 25 percent and mobile penetration of 26 percent (GSM and CDMA). The number of internet users reached 94 million at the end of 2004. China’s internet access market is in the midst of shifting from narrowband to broadband access: the total number of broadband users in China reached 26 million in 2004, compared with 1.9 million in 2001.

Number of subscribers still climbing

It is still uncertain when China will announce which operators will receive 3G licenses and which technology standards will apply. The report states that China Mobile is certain to receive a license for WCDMA, and that Unicom is expected to upgrade its CDMA network to CDMA 2000 EVDO. But whether the two major fixed-line operators, China Telecom and China Netcom will receive also licenses and what technology they might deploy is still undecided, with China’s TD-SCDMA standard representing the biggest wild card. Estimates show there will be approximately 500 million mobile subscribers in China by 2007.

Söderberg says reports from China usually tend to reflect the eastern part of the country while there are huge areas in the western parts that are waiting to be developed.

"We have tried to include the demographic differences in the report. I believe that the western parts of China represent an untapped potential for ICT solutions. As soon as these areas start to evolve, I think we will see many new innovative solutions for the people living in these areas. These could include, for examples, solutions that will complement traditional logistic systems, pension payment systems and e-government services," Söderberg says.

Hendrik Bergstén