An Introduction to China’s
“Digital Economy”
Yuan Yuehong, Li Jia
Chinese University of Hong Kong
Ma Jun
Development Research Center, State Council
of China
• outline:
– Internet
– software industry
1
Number of Internet Users (12/99)
Country
Users (1000)
China is % of
penetration
U.S.
110,825
9%
40.65%
Japan
18,156
54%
14.39%
U. K.
13,975
70%
23.64%
Canada
13,277
74%
42.82%
Germany
12,285
80%
14.97%
China
8,900
100%
0.71%
Australia
6,837
143%
36.40%
Brazil
6,790
144%
3.95%
Korea
5,688
172%
12.13%
Taiwan
4,790
205%
21.66%
China's # by CNNIC
Other #s by Computer Industry Almanac, as cited by sina.com
http://tech.sina.com.cn/news/internet/2000-01-05/14751.shtml
China's # is 6,308, 000 according to Computer Industry Almanac.
Total population from CIA fact book, http://www.cia.gov/cia/publications/factbook/country.html
2
Semi-annual Internet Growth
Time
12/31/99
6/31/99
12/31/98
30/06/98
Computers users
Int'l
Online
(million) web site # bandwidth
3500
9.8
15153
351
1460
4
9906
241
747
2.1
5300
143
542
1.2
3700
85
Registered domain name in 12/99: 48695
Source: CNNIC
3
Semi-annual Growth Rates
Time
12/31/99
6/30/99
12/31/98
Computers
online
140%
95%
38%
users
web sites
145%
53%
90%
87%
75%
43%
Int'l
bandwidth
46%
69%
68%
World annual user growth rate is 38% from 1998 to1999
1998 global Web population: 142 m; In 1999: 196 million.
Source: Maryann Jones Thompson, "Tracking the Internet Economy: 100 Numbers You Need
to Know," The Standard, September 13, 1999
4
Typical Chinese Internet User
Dec-99
Dec-98 US 10-12/98 US 4/95
single
64%
64%
30%
40%
young
(age 18-30) 76%
(20-30) 68% (21-30)26% (21-30) 28%
male
79%
86%
64%
80%
college educated
77%
77%
58%
65%
student or work for computer industry
34%
34%
live in Beijing, Shanghai, guang dong
45%
49%
per capita monthly household income (RMB 500-2000)65% (400-2000)70% $57K*
$69k*
•spending average 2 and half hours a day online
(12/99)
* per household income
source: CNNIC. US # from GVU's WWW User Survey,
http://www.cc.gatech.edu/gvu/user_surveys/
5
Purpose and Services of Usage
purpose
% of users
information
58%
learning
12%
entertainment
10%
work
7%
Source: CNNIC
services
% of users
email
72%
search engine
50%
download software
44%
chatroom
25%
web news
17%
bboard
16%
online game
14%
stock trading
9%
online shopping & other commercial
8% activity
Internet phone
8%
6
Some Other Numbers
• Internet aware rate: 5%
• human resource/recruiting web cites: 300
source: Xiao Zhaohu, "Old Model, New Development," China
Computer , NO. 42, June, 2000
• current ecommerce sites: 1100
• Banking cards issued: over 100 million
Citing vice minister of Information Industry of China,
http://www.ccidnet.com/html//economics/eye/2000/06/22/61_2123
.html
7
Discussion
• Internet development is in a very early
stage, indicated by:
– low penetration rate
– young, single, male, educated user population
– used primarily for information and
communication
• high growth rate at this stage is not
surprising
8
Barriers to Internet Growth
• low per capita income, leading to:
– difficulty to pay for access cost
– low value per user to online business/advertiser
• under-developed telecom infrastructure:
– phone penetration: 13% ( 28% in cities), 12/99
(http://www.mii.gov.cn/tongji/yb/200001_7.htm)
• low average education level:
– illiterate population: 200 million
– S.&T. illiterate population: 500 million
9
Barriers to Internet growth (cont.)
• under-developed credit system
– banks unwilling to provide consumer credit
– consumers not trust online business, unwilling
to furnish credit card #
• low IT utilization in enterprises
– about 1200 firms used ERP (source: Software World,
No. 155, 1/1/2000, http://media.ccidnet.com/swm/155/06401.htm)
• improper incentive provided by currently
economy system for firms to use Internet
10
Internet Growth
Favorable Factors
• rapidly developing telecom infrastructure
and alternative access channels:
– annual growth of phone lines: 20 million
– 43 million mobile phone users in 1999, adding
18 million a year;
– over 70 million people have access to cable TV,
and adding 5 million a year
(http://www.chinacatvnet.com/info/intr.htm)
– TV penetration: 86.1% (source: Cable TV and Information
highway, http://www.chinacatvnet.com/info/info0004.htm
11
Internet Growth
Favorable Factors (cont.)
• enthusiastic government
– Government Online Program
• calling for 30%, 60%, and 80% of all levels of
government online by 1998, 1999, and 2000
– Enterprise Online Program, 2000
• calling for 100 large conglomerates, 10,000 midsize
firms, and 1,000,000 small firms to be wired within
a year
• growing sector of stock and private firms
• smaller and more efficient state sector
12
“Digital Divide”: a Potential
Serious Problem for China
• Multi-dimensional digital divide:
– international, urban v.s. country, coastal v.s.
inner provinces, income-based, etc.
• promote Internet access through postal
offices, kiosks, public libraries
• role of international organizations
13
China Software Market: Small
But Growing Fast
year China (growth %)
1996
1.1
1997
1.4(22%)
1998
1.7(23%)
% of hardware
world (growth %)
13%
118.4
11% 135.4 (14%)
11%
Source: Development Research Center, http://www.drcnet.com.cn/jingji/hyjj-aindex.htm
14
Market Distribution
application software
(accounting, ERP,61%
Chinese
platform (OS, database, ..)
39%
domestic vendor
40%
foreign vendor
60%
Source: CCID—MIC, 1999
15
Industry Structure (1997-1998)
number of firms
5000
private/employee owned
60%
state owned
30%
foreign/joint venture
10%
average employee/firm
30
# firms with employee over 500
10
# firms with revenue larger than US$12 million
9
revenue of largest Chinese firm in 1998
US$ 103 million
Source: Xinhua Electronics News , “Overview of China’s Software Market &
Industry,” Xinhua News Agency, http://www.idgchina.com/xinhua/software.htm
16
Increasing Concentration: Share
of Top Five Vendors
all software
finacial software market
1997
18%
71%
1998
19%
88%
Source: CCID—MIC, 1999 and Development Research Center,
http://www.drcnet.com.cn/jingji/hyjj-a-index.htm
17
Problems of China's Software
Industry
• Small, not achieving economy of scale
• limited capability and little achievement in
system software:
– rare examples: Hopen embedded OS, Cosix 64
• low purchase power of software users +
difficulty for software vendors to pricediscriminate
• difficulty in enforcing copyright law
18
Favorable Factors for China’s
Software Industry Development
• growing demand for software in a rapidly
growing economy
• able to train good software engineers
• low software labor cost:
– USD $0.70, $1.80, $1.80, and $4.50 per hour in
China, Mexico, east Europe, and Brazil (Source:
NationBanc Securities number cited by Guang Ming Daily,
www.gmdaily.com.cn/gm/19990609/gb/18082^GM13-017.htm)
• more modern ownership and management
system in software firms
19
Favorable Factors (cont.)
• government emphasize software industry
– setting up software parks, giving special
favorable treatment in tax, financing, etc.
– there are 14 software parks, over 700 software
firms in the parks, with close to 60, 000
employee, with sales about $1.3 billion in 1999
• opportunity provided by software paradigm
shift:
– Internet, Java, ASP (software provided as
services), open source software
20
Summary
• Both software industry and Internet are
small and in very early stage
• growing fast
• many hurdles to overcome
• some strong points pointing to huge
potential
21