Chen Xiaohong

Research Report No 1, 2000

The computer industry in China has experienced about four stages of development from introducing computer technology from the former USSR to forming a relatively complete computer industry system at present. The four stages are: the period of enlightenment from 1956-1965, the period of development with ups and downs from 1966 to1977, the period from 1978 to the end of 80s when computer industrialisation really started in China, and the fourth period beginning from 90s, when the computer industry has achieved rapid development. In 90s, the scale of the computer industry as well as the market grew rapidly at an average annual growth rate of over 40%. The computer industry has become one of the most important industries of the national economy.

(I) The rapid growth of the computer market since 90s and the characteristics in its structure

1. Rapid expansion of the scale of the computer market with hardware as the mainstay

The scale of the computer market in China has expanded rapidly. The sales have increased from 3.99 billion yuan in 1990 to 130 billion yuan in 1997, which means an increase of more than 30 times in eight years. The annual growth rate in 90s is in general over 40%. The Chinese computer market is dominated by hardware. Till 1997 the hardware sales still accounted for 80% of the whole market, whilst the market share for software and service was only 8.7% and 11.3% respectively. Despite the rapid expansion of the market scale, the hardware-dominated structure remains the same, which means the application level of computer is relatively low in China. The structure is also related to the poor environment for the development of software and service in China.

2. The hardware market is mainly composed of the main frame, especially PC, with a high proportion for peripheral equipment.

Statistics of the Ministry of Information Industry show that the market shares of various products in the hardware market in 1997 are as follows: computer machine package 43%, peripheral equipment 26%, consumption material and parts 17%, application products 10%, network products 4%. Computer machine package is composed mainly of PC. The sales of PC in 1997 reached 41.5 billion yuan, taking as high a proportion as 39.9% in hardware. It is estimated that the market share of PC is nearly 90% of the computer machine package market. The high proportion for PC resulted from the rapid expansion of the PC market in China since 90s. As is listed in Table 1, only 370,000 sets of PC were sold in China during the whole period of the “Seventh Five-Year Plan”. It was 100,000 in 1991, 3.5 million in 1997 with the sales reaching 41.5 billion yuan, and more than 5 million in 1998. The annual growth rate of sales since 1992 has been, in general, over 60%.

Table 1 Sales Volume and Sales Value of PC in China

Year	1986	The “Seventh Five-Year Plan”	1990	1991	1992	1993	1994	1995	1996	1997
Sales Volume (thousand sets)	59	370	10	100	250	450	720	1150	2100	3500
Growth Rate (%)		9.4		18	150	80	60	60	83	66.7
Proportion of Domestic PC (%)	65	7.0	70	42	39	33	44	50.4	56	67
Sales Value (billion)					3.75	6.34	11.1	16.9	24.8	41.5
Growth Rate (%)						69	74.8	52.3	47	67.3
Proportion in the Hardware Market (%)					23.67	32.53	37	35.96	34.69	39.9
Proportion in the Computer Market (%)					18.84	22.32	27.27	27.48	26.96	31.92

Source: the figures for 1986 were estimations by the author based on material of the former Electronics Ministry. See “Electronics Industry Year Book” for figures for the “Seventh Five-Year Plan” and for 1991~1996. Figures for 1997 were provided by concerned departments of the Ministry of Information Industry.

The characteristics of the hardware market in China, fast growth and led by PC, is basically consistent with the international trend, the difference being only that the rapid expansion of PC market in China is about ten years later than that in the US. Also, the proportion of PC in the computer market is nearly 90% in China, which is higher than that in the US and Japan, where it is about 70%.

3. The computer market in China has already been connected with the international market. The value of trade is increasing at an extremely high speed. Trade deficit has changed to surplus. At present the main body of import and export is parts and peripheral equipment.

The total value of import and export of products in the category of computer grew rapidly from merely US$ 640 million in 1991 to US$ 13.16 billion in 1997. After 1993 trade deficit was replaced by surplus. And the surplus increased from US$ 80 million in 1993 to US$ 4.3 billion in 1997. At present the main body of import and export is peripheral equipment and parts. The main reasons for the rapid growth of trade and the current trade structure are as follows. The computer market in China expands rapidly. Domestic computer industry, including overseas-funded enterprises, has achieved fast growth. A large amount of parts need to be imported because the technology of domestic computer parts industry is lagging behind.

4. The structure of demand of the computer market in China

According to statistics of the former Electronics Ministry, computer and concerned products in China in 1996 were sold to customers with the following proportions: financial / insurance and manufacture industries 18%, service industry 9%, transportation 8%, telecommunications 8%, education and research institutions 7%, energy and government organisations 6%, and households 4%. However, the proportion of household purchase in the PC market is much higher and is rising. According to data and prediction of the former Electronics Ministry, of the PC sales in China, the proportion of household purchase was 16.4% in 1997 and will be over 30% by 2000.

(II) The computer industry in China has basically taken shape with national brands developing fast. However, the gap between Chinese and foreign companies is still relatively big.

1. The preliminary formation of the computer industry in China

The basic indication of the formation of an industry is that the enterprises grow and begin to form a system and reach a certain scale. The number of computer enterprises within the former electronics industry system was only 191 in 1991 with a total employment of less than 100,000 people. The number of such enterprises outside the system was also small. According to the Third National Industrial Survey, the number of enterprises conducting development, manufacture, sales, consultation service of computer and related products reached 15,000 in 1995, with an employment of 300,000 people. Of these enterprises, more than 1,000 manufacturers employed some 100,000 staff, more than 1,000 software enterprises employed 80,000 staff and some 13,000 enterprises in sales and service employed some 120,000 staff.

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