BMI View: China continues to outperform in terms of IT spending growth and IT sector development due to a mix of economic strength and a forward-looking policy environment . Even after rapid growth in the past decade , the market remains attractive with strong growth prospects resulting from (inter alia) the size of population, rising incomes, relatively low penetration of devices and solutions and a supportive policy environment . IT spending growth in China is expected to outperform on a regional and global basis, with a CAGR of 8.8 % forecast 2015-2019 as IT spending increases as a share of GDP . However, China's IT market is not without its challenges as the pool of first-time buyers diminishes and vendors continue to struggle in the face of ongoing high levels of piracy, cyber security issues , intense competition for price-sensitive consumers and uncertainty generated by regulatory decisions, particularly in the rapidly developing cloud computing market . We believe t he outlook is positive overall , with the caveats mentioned above.
Headline Expenditure Projections
Computer Hardware Sales: CNY561.7bn in 2014 to CNY593.4bn in 2015, +5.7% in local currency terms. A stabilisation of the tablet market after declining volumes in 2014 will see growth accelerate slightly in 2015, but remain below the rate to 2013 when tablet sales boomed.
Software Sales: CNY100.1bn in 2014 to CNY109.6bn in 2015, +9.5% in local currency terms. Growth expected to dip in 2015 after OS upgrade demand was brought forward to 2014 by the withdrawal of Microsoft support for XP.
IT Services Sales: CNY209.0bn in 2014 to CNY241.9bn in 2015, +15.7% in local currency terms. Cloud computing adoption expected to accelerate in 2015 due to improvements in network infrastructure and the development of the local ecosystem under the stewardship of government initiatives.
Key Trends And Developments
BMI expects government support and policy initiatives for the development of the cloud computing market in China will see strong growth continue for the duration of our five-year forecast period. The MIIT set the goal of increasing cloud revenues by at least 50% annually over the next few years, while building China's presence in the global cloud computing market. More recently, and in part a response to cyber security concerns, an eight-point initiative was launched which also includes the creation of a national industry data recovery centre and a national safety control service centre for China's data security. The push for data sovereignty is creating significant opportunities for Chinese IT vendors. For instance, in February 2015 it was announced Inspur would build the world's most advanced data centre as part of a USD480mn investment in the Yunhai Science and Technology Park in the Henan Province of central China. Meanwhile, Lenovo Group announced in December 2014 it would invest CNY300mn (USD48.7mn) building 50 cloud computing centres in China. Although foreign players offer rich product offerings, BMI believes Chinese enterprises will be encouraged to choose local players by government initiatives and the greater level of confidence in local providers.
Another emerging technology in which China is shaping up to be a regional leader is the smart services market, or Internet of Things (IoT). IDC estimates the number of devices in the APAC Internet of Things will increase from around 3.1bn in 2015 to 8.6bn by 2020 - while over the same period the market size will increase from USD250bn to USD580bn. The leading markets in APAC are China and then the cluster of more developed markets such as South Korea, Australia and New Zealand. It is therefore no surprise that Chinese IT vendors are positioning to capitalise on the development of the Internet of Things. For instance, in March 2015 Huawei and SAP teamed up for several co-ventures surrounding the Internet of Things (IoT) and Industrie 4.0. Meanwhile, in April 2015 China-based e-commerce company Alibaba secured a contract from the municipal government of the capital city of Beijing to jointly develop smart city initiatives to move public services online. BMI expects local vendors are best placed to leverage local relationships, including with the government, but there are still large scale opportunities for global vendors to partner with local vendors.