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Profile of China's software industry in 2008
[February 26, 2009]

Profile of China's software industry in 2008

BEIJING, Feb 26, 2009 (Xinhua via COMTEX) -- Following is a profile of China's software industry in 2008.

-- Operation features 1. Industry's development was fast and stable, but the final quarter shows slight drop China's software industry maintained rapid development during 2008, achieving business revenue of 757.29 billion yuan, up 29.8 percent year on year, or 8.3 percentage points higher than the previous year.

However, starting from the final quarter, industrial income witnessed a slight drop. By the end of October, accumulative growth rate slid 1.8 percent from the first nine months.

Chart 1 shows the income growth of China's software industry during the 2008.

2. Software technology service becomes crucial sector to industrial growth Income from the software products topped 316.58 billion yuan last year, accounting for 41.8 percent of the total industrial income, up 32 percent year on year.

Software technological services achieved revenue of 145.5 billion yuan, surging 39.9 percent from 2007, and 10.1 percentage points higher than the industry's average growth rate.

Revenue of the embedded software sector grew by 25.2 percent to hit 111.82 billion yuan, with the growth rate 12.8 percentage points higher than that of electronic information manufacturing.

The integrated system and superconductor (IC) design industries gained revenues of 161.64 billion yuan and 21.74 billion yuan, respectively, up 25.2 percent and 16 percent.

Chart 2 shows the business revenue proportion of different sectors.

3. East China holds stable growth The software industry accomplished revenues of 638.92 billion yuan in eastern China by the end of 2008, accounting for 84.4 percent of the industry's total, up 29.5 percent. The growth slightly slid 0.8 percentage points from January to November.

The industrial scale in Beijing, Guangdong Province and Jiangsu Province ranked the top three in all the country. The software industry grew over 30 percent last year in Jiangsu Province.

Revenues in western China surged 32.6 percent to hit 65.97 billion yuan, 3.5 percentage points higher than the growth rate in the first eleven months of 2008. The industrial growth rate in Sichuan Province and Guizhou Province both exceeded 50 percent, while that in Chongqing and Shaanxi Province was lower than the average level across China.

Central China gained 52.4 billion yuan from the software business, rising 29.4 percent on the year.

4. Software export holds rapid growth China exported software of 14.2 billion US dollars during 2008, soaring by 39 percent year on year.

Included in the exports was software outsourcing services of 1.59 billion dollars, up 54.3 percent. The growth slowed in the second half of 2008 due to the financial crisis and RMB appreciation.

Japan was still the main destination of China's outsourced software, accounting for 60 percent of the total. As the two countries' cooperation deepens, the business form changes gradually from information technology outsourcing (ITO) to business process outsourcing (BPO) and knowledge process outsourcing (KPO).

5. Development of different sectors varies Income growth of enterprises in fields such as software outsourcing services, embedded software of consuming electronics, and IC design was comparatively slower because of the global financial turbulence, Chinese currency appreciation and manufacturing decline.

Some firms of IC design even fell into severe deficits.

Nevertheless, companies who provided solutions to telecom and electric power enterprises all had their revenue growth exceed 50 percent.

Some game software and antivirus software producers' also gained rapidly during the 2008.

-- Main challenges confronted by China's software industry 1. Impacts triggered by international financial crisis deepens China's software industry didn't drop much in the final quarter of 2008, since the industry relies on the domestic market and most of the orders had been made during the first half of the year, and impacts triggered by the global financial crisis appeared later.

However, as influences of the crisis penetrate to related industries, the software industry will dive further.

2. Competition in the domestic market intensifies Multinational enterprises attached more importance to the Chinese market after tumbling in the European and American markets.

Global software giants came to China in succession over the pass few months expecting closer cooperation, and the top three Indian software enterprises set up service companies in China one by one, which greatly intensified industrial competition.

Besides, problems such as software piracy and intellectual property violations were striking in China. Monopolies still existed in certain fields and will affect the healthy development of the industry.

Leading domestic enterprises encountered vicious procurement as industrial integration continues, and the industry's security condition is not optimistic.

3. Macroenvironment needs improving Currently, China's software service outsourcing possesses huge market potential, but was restricted by the macroenvironment. Some enterprises complained that because of an incomplete credit system and inflexible management on information security, many multinational corporations dared not to cooperate with them.

Meanwhile, the standard for being approved as a high-tech enterprise is too high for small- and medium-sized enterprises to enjoy preferential policies, affecting the industry's competitiveness.

-- Chinese software industry's advantages 1. Domestic demand expansion policies will offer great opportunities for the software industry China is in great need of software on informative villages' construction, infrastructure construction system, network design and maintenance and traditional industries' information reformation.

China issued 3G licenses last month, the communication network building this year needed over 200 billion yuan, which would drive up the growth of communication embedded software and network system solution.

2. Industrial integration promotes resources optimization deployment The establishment of some international software service centers during 2008 increased the power of China's software industry and provided more opportunities to domestic enterprises. China's software firms conducted resource optimization through mergers and regroupings, which lessened the number of small companies and increased the scale and competitiveness of remaining firms.

3. Technology advance offers more opportunities to the software industry New technologies, namely virtualization technology and cloud computing, will change the structure of China's software industry.

The virtualization technology increases the utilization efficiency of server resources, integrates data centers and server platforms, and enhances the efficiency and capacity of software R&D.

Cloud computing provides mass computing services based on the internet, which not only can be used as the platform of software services, but also offers spaces for storage, deals with information and business, and verifies business models of the software industry.

Meanwhile, as the integration of networks accelerates, mobile internet is becoming a trend for development, and new business will use more advanced technology and applications.

As negative impacts of the global financial crisis aggravate this year, the growth of China's software industry will drop back further. But with the implementation of the country's policies for expanding domestic demand and conducting technological reform, the growth will rebound in the second half of 2009. The industry is expected to grow 22-25 percent this year.

(Source: Ministry of Industry and Information Technology)

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