“NPC & CPPCC” of 2015: New Barometer for China’s IT Market
09 Mar 2015
Beijing, March 10, 2015 – The Chinese annual NPC (National People’s Congress) and CPPCC (Chinese People’s Political Consultative Conference) sessions (“Two Sessions” for short) will have extraordinary significance to China’s IT market in 2015 as it is the key year of comprehensively deepening reform, the inaugural year of comprehensively advancing the rule of law, and the ending year of the 12th Five-year Plan. The goals, tasks, and policies set by the government in 2015 will have a huge impact on the Chinese economy and become a barometer for China’s IT market.
“On February 25, the People’s Daily ran a front-page editorial which presented for the first time the ‘Four Comprehensives’ – comprehensively build a moderately prosperous society, comprehensively deepen the reforms, comprehensively govern the nation according to law, and comprehensively enforce strict party discipline – as the guiding theory to lead the way for strategic layout for national rejuvenation”, said Kitty Fok, Managing Director, IDC China, “As the basic theory that will guide China’s economic policy for the following ten years, the ‘Four Comprehensives’ will become the keynote of the Two Sessions of 2015 and also serve as a new barometer for China’s overall IT market.”
IDC believes that China’s Two Sessions of 2015 will focus on six keywords of utmost importance: maintaining stable growth, promoting reform, adjusting structure, fighting corruption, benefiting livelihood, and preventing risk. The relationship between the six keywords and the “Four Comprehensives” is shown in the table below.
The six keywords will become a barometer for China’s IT market:
- “Maintaining stable growth” determines that China’s overall IT market has entered a “New Normal” of moderate to low growth;
- “Promoting reform” augurs ill in the short term and well for the long term for the IT market;
- “Adjusting structure” means a greater role of IT in supporting industry transformation and innovation;
- “Fighting corruption” means a cleaner business environment of the IT market;
- “Benefiting livelihood” will create new growth points for the IT market;
- “Preventing risk” will drive changes to the competitive landscape of China’s IT market.
1. “Maintaining stable growth” determines that China’s overall IT market has entered a “New Normal” of moderate to low growth
China’s GDP grew by 7.4% in 2014, the lowest since 1999. One of the key items on the agenda of the Two Sessions of 2015 is to set the country’s economic growth target in 2015. IDC forecasts that the target will not be lower than 7%, to be in line with the New Normal. IDC’s latest IT Market Black Book released on February 2015 expects China’s IT market to grow by only 5.0% in 2015, citing the negative growth of PC market and the slowing growth of the smartphone and tablet markets as the main reasons. The enterprise IT market meanwhile is expected to grow stably at the rate of around 10%.
To ensure that China’s GDP growth will not drop below 7%, the Chinese government will continue its proactive fiscal policy and prudent monetary policy, optimize the economic structure, prioritize the implementation of the top three regional strategies of “One Belt, One Road”, Beijing-Tianjin-Hebei Metropolitan Region, and Yangtze River Economic Belt, and promote the coordinated development of industrialization, informatization, urbanization and agricultural modernization. In late 2014, the State Council approved a RMB 10 trillion investment plan on seven categories of infrastructure projects, and it is expected that RMB 7 trillion of the budget will be invested in 2015. The seven categories of projects include grain and water conservation, transportation, environmental protection, healthcare, communications and oil and gas pipeline, clean energy, and mining resource protection. These projects will drive the growth of the enterprise IT market and deserve special attention from IT vendors.
2. “Promoting reform” augurs ill in the short term and well for the long term for the IT market
Of the 60 reform measures included in the Decision of the CPC Central Committee on Major Issues Concerning Comprehensively Deepening Reforms, two thirds have been launched. The year 2015 is the key year of comprehensively deepening reform, and the focus of reform in the coming two or three years will be on investment and financing, taxation, finance, state-owned enterprises, opening up to the outside world, land, and administrative review. Any reform has a price and has a disruptive effect in the short term. As for the present reform, it will slow or change the procurement cycle and is a negative factor for the IT market in the short term. In the long term, however, the reform will provide a strong foundation for future development of industries. The seven major tasks of the taxation reform, for example, will drive IT investment in the government and tax administration sectors. The reform of state-owned enterprises will open up previously-closed areas of the economy to private capital and lead to further market liberalization and improved enterprise efficiency. IT system restructuring and upgrade will be a key area for enterprises to enter overseas markets. The year 2015 is also an important year for the construction of Shanghai Free Trade Zone (FTZ), which has been expanded to have an area of 120.72 square kilometers. Three other FTZs in Tianjin, Fujian and Guangdong approved in late 2014 will also start construction after the Two Sessions of 2015. The four FTZs will have a combined area of nearly 480 square kilometers. IT applications related to these FTZs such as smart Cloud computing infrastructure, smart governance and big data and relevant prioritized industries in each of the FTZs will be a long-term driver of the IT market. IDC advises IT vendors to be well prepared for the future explosive growth of the market.
3. “Adjusting structure” means a greater role of IT in supporting industry transformation and innovation
Structural adjustment has four dimensions: 1) build a modern industrial system; 2) develop the service industry; 3) drive industrial restructuring and technological upgrade; and 4) improve the research and innovation system.
As for building a modern industrial system, the focus is to develop advanced manufacturing while accelerating the development of strategic emerging industries such as high-end electronic information industry, New Energy Vehicle (NEV), LED, biological industry, industrial robot, and 3D printing. In addition, the port-neighboring economy prioritized in the comprehensive experimental zones for developing marine economy in coastal areas will also see strong growth. These industries will benefit the IT market.
As for developing the service industry, the focus will be placed on productive service industries such as financial service and modern logistics and efforts will also be made to accelerate the development of the consumption service industry, promote the transformation and upgrade of the traditional service industry and develop personalized and differentiated services to stimulate consumption.IT vendors should pay attention to business opportunities in the modern service industry.
To drive industrial restructuring and technological upgrade, Chinese governments at various levels will leverage fiscal expenditure to attract participation of social funds and give prioritized support to technological transformation of industrial enterprises meant for capacity expansion, efficiency improvement, automation, equipment update and green development. Measures will be taken to establish technological transformation platforms and project libraries, promote the in-depth integration of industrialization and informatization, and strengthen IT application-oriented transformation of traditional industries. IT plays an indispensable role in industrial transformation and upgrade. Hence IT vendors should follow closely these developments.
In improving the research and innovation system, the government will improve the market-oriented mechanism for technology innovation, strengthen the technology innovation system where enterprises play the dominant role, support the establishment of R&D centers by large and medium-sized pillar enterprises, and support technology innovation activities of incubated and startup SMEs. Efforts will also be directed towards fostering various new R&D organizations, developing technology agencies, establishing technology transaction service platforms, and increasing the match of S&T outcomes and relevant industries. The Chinese government has released a series of incentive policies and, on this basis, will further reduce taxes and administrative fees for small and micro-sized business and entrepreneurial and innovation activities. These will greatly stimulate innovation of SMEs and present opportunities for IT vendors.
4. “Fighting corruption” means a cleaner business environment for the IT market
Anti-corruption will remain a hot topic during the Two Sessions of 2015 as well as an important part of rule of law and risk prevention. In 2015, the momentum of anti-corruption will continue. In the short term, it will have a major impact on such industries as exclusive dining, entertainment, hospitality and luxury and affect IT spending in these industries. In addition, due to anti-corruption, some government departments have postponed their IT procurement plans and, in some cases, cancelled previously approved projects, thus causing an impact on the IT market. In the long term, however, anti-corruption will help create a clean business environment for the IT market and be positive for those vendors, especially emerging medium and small-sized vendors, which have a strong technological strength and deep understanding of users’ operations and needs. Meanwhile, the government’s anti-corruption fight will be increasingly dependent on IT support, including mobile, social networking and big data technologies, as governments at various levels leverage IT to build their corruption reporting platforms. An excellent example is the mobile app of the Supervision Department of the Central Commission for Discipline Inspection, which has effectively leveraged the role of IT technology and new media in anti-corruption.
5. “Benefiting livelihood” will foster new sources of growth of the IT market
Benefiting people’s livelihood is key topic in the agenda of the Two Sessions every year. It directly relates to the first of the “Four Comprehensives” – comprehensively build a moderately prosperous society. It covers nine major areas, including social security, healthcare, education, retirement and pension, employment, public security, food and drug safety, community service, and family service. A total of 11 projects meant to benefit people’s livelihood in these areas have been planned (see the website of the National Commission of Reform and Development). The year 2015 will be a key period for the construction of those projects, and each of the projects will represent a major business opportunity for the IT market. Typical examples include the projects of achieving real-time medical insurance settlement for inter-province medical treatment of insured residents in 15 provinces, making over 10,000 premium courses available online for free, increasing effective response to emergency events by 30%, achieving service coordination of nursing homes, communities and hospitals, and achieving interconnectivity of public service systems at municipal, district, sub-district and community levels in some pilot cities.
In late August of 2014, the State Council issued the Instructive Opinions on Robust Development of Smart Cities. Benefiting people’s livelihood is one of the key areas of smart city building. The government has explicitly emphasized on “accelerating IT projects that benefit the people” in the drive to construct a universally accessible public service system.
The government initiative to benefit people’s livelihood will give a new impetus to the growth of the IT market. According to IDC’s research, China’s smart city market will reach US$15.23 billion in 2015, up 15.5% from 2014. IDC advises IT vendors to keep track of smart city developments, especially business opportunities in those projects meant to benefit the people. This is an area which will see steady growth in the coming decade.
6. “Preventing risk” will drive changes to the competitive landscape of China’s IT market
Risk prevention covers two categories of risks: 1) economic risks, including debt risk, financial risk, export risk, etc.; 2) network and IT security risks at the national level. Risks in the first category are basically within control. Many of such technologies as Cloud computing and big data analytics can be leveraged for risk analysis and pre-warning. This is the area where IT vendors will find their opportunities. For the second category, the Chinese government has attached growing importance to it, and controllability of IT products will become extremely important.
IDC believes that the concerns over the second category of risks will drive changes to the competitive landscape of China’s IT market. Specifically, those local vendors with strong technological strength and proprietary products will gain a bigger market share and become increasingly competitive while the shares for foreign vendors will gradually decrease. Foreign vendors of playing at middle- to low-end market, in particular, will be seriously impacted.
According to IDC’s research, the share of local vendors in enterprise IT appliance market has doubled in the past three years. After the acquisition of IBM’s x86 server business, Lenovo has risen to become the world’s third largest server vendor. Local vendors have stepped up efforts in high-end product development, endeavoring to enter the core IT application market. With respect to software packages, local vendors have started making breakthroughs in such core software as operating system, middleware and data bases. Many of them have contributed a large amount of source codes to open-source communities. Due to the nature of Cloud computing, local vendors with local data centers have gained a remarkable advantage in domestic Cloud computing service market. With the globalization of Internet services, these local Cloud computing service vendors will expand to global markets.
In the Instructive Opinions on Strengthening the Banking Network Security and Informatization through the Application of Secure and Controllable Information Technologies (CBRC Document No. 39) issued in September 2014, the China Banking Regulatory Commission put forward the goal of mastering core know-how and key technologies of banking informatization and increasing the percentage of secure and controllable information technologies in the banking sector to approximately 75% by 2019 while requiring that all financial institutions in the banking sector shall increase the use of secure and controllable information technologies at the annual rate of not less than 15% from 2015. This document will play an exemplary role for other industries. IDC forecasts that other key sectors such as telecommunications, government and energy will release similar internal or public documents, which will have an even greater impact on foreign vendors.
IDC believes that to address the new situation in the coming years, foreign vendors and Chinese companies will have more cooperation in different forms, such as setting up joint ventures. This cooperation will go beyond the simple arrangements such as OEM and distribution practiced in the past and take place at higher levels. This will be mainly reflected in two aspects. The first is technology transfer. Foreign vendors will deepen cooperation with Chinese vendors by opening up core software and appliance technologies and helping Chinese companies make technological breakthroughs while expanding the presence of their own core technical platforms in the market ecosystem, thus gaining more local partners and wining more customers. The second is capital investment. In the future, a growing number of foreign vendors and investors will invest in domestic IT vendors or set up joint ventures with them with an eye to capitalizing on the development of domestic IT vendors. IDC believes that this will be a win-win cooperation which not only benefits both domestic and foreign vendors but also drives the development of information technology in China.
“Maintaining stable growth is the basis, promoting reform is the safeguard, adjusting structure is the direction, fighting corruption is the support, benefiting livelihood is the foundation, and preventing risk is the bottom line,” said Wu Lianfeng, the Associate Vice President of IDC China. “These six keywords will be the highlights of the Two Sessions of 2015 as well as the pillars of China’s future economic development, and every keyword serves as a new barometer for China’s IT market. IT vendors are advised to pay due attention to these new trends and plan ahead in order to capture business opportunities presented by China’s economic and industry transformation.”
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International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For more than 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives, including not only well-known MNCs in the Fortune Global 500, but also many Chinese domestic industry leaders. IDC is a subsidiary of IDG (International Data Group), the world's leading technology media, research, and event company. More information can be found at www.idc.com.cn.
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