DC: Doubling of China's GDP to Fuel Demand for Consumer Goods; Boon for ICT Sector

The recently concluded 18th China Communist Party Congress, which saw outgoing President Hu Jintao deliver a report on China's economy and a roadmap for the next decade, will jump-start key industries including the information and communications technology (ICT) sector, where a projected doubling of the 2010 GDP and per capita income for urban and rural residents is expected to create strong demand for consumer goods.

The report, titled Unswerving Follow the Path of Socialism with Chinese Characteristics and Strive for Building a Moderately Prosperous Society in All Prospects (hereafter referred to as the Report), which is summarized as follows, also said that there is a need to accelerate the implementation of innovation-driven development strategies and enhance the level of China's open economy.

Doubled Personal Income Will Benefit the Consumer ICT Market

Over the next 10 years the annual growth rate of China's GDP and per capita income is expected to be higher than 7.2%. The increasing per capita income will not only boost the expansion of traditional FMCG and retail industry, but also drive the growth of the durable consumer goods industry, including computers, televisions, refrigerators, washing machines, automobiles, as well as home digital content and services. The market for consumer PCs, tablet PCs, smartphones, Internet services, and digital content will keep growing in a fast and steady way over the long term.

Transformation of Economic Growth Model Will Benefit the Enterprise ICT Market

Through the seamless integration and inter-dependence of the communications sector and rapid industrialization, there is expected to be great emphasis and demand for industrial products and information technology. China is expected to see a boom in the industrial software and ICT solutions sector. Fueling the growth further will be the country's urbanization rate, which is projected to exceed 60% in the next 10 years, leading to the fast growth of urban IT infrastructure and services.

The increased demand for IT support for agricultural modernization will significantly boost the steady development of broadband infrastructure construction, comprehensive information service stations, grassroots-level e-governance solutions, Internet of things technology, and personal terminal devices (PC, tablet, smartphone) in rural areas. In terms of accelerating the economic growth model, the Report said: "We should deepen the reform of economic institution, implement innovation-driven development strategy and enhance the level of China's open economy." This indicates the government will consistently promote the SOE reform, encourage strategic emerging industries, further attract foreign investment, and make China's economy more open. There will be greater support for the expansion of the ICT market shared by the SOE, strategic emerging industries, and multinational companies.

Social Management Innovation Will Benefit Government and Smart City

According to the Report: "Endeavors must be made to (1) enhance social administration capacity through better legislation, institution and mechanism, personnel and information technology development; (2) improve government's social service methods by strengthening grassroots social administration and service system, enhancing community service functions in both urban and rural areas and putting general public's role in participating social administration into full play; (3) improve and innovate management and service for migrant population and those who are in special needs; (4) establish and improve the risk-based assessment mechanism to analyze the influence of decision-making on social stability; (5) strengthen infrastructure development for public security and workplace safety to contain particularly serious safety accidents." The key thrusts in the report point towards the development of a smart city. Through data collection from widely deployed end-points on the Internet of things, cloud data storage, and big data mining, the smart city system will better support the innovative social administration. In February 2012, 154 Chinese cities in 28 provinces proposed the idea of building a smart city with a total investment of 1.1 trillion RMB – 41 of these cities have incorporated this idea into their twelfth 5- year plans or government work reports.

Building a Powerful Cultural Country Will Benefit the Digital Contents

According to the Report: "We should (1) speed up the development of key cultural projects beneficial to the public with the principle of being grassroots oriented and serving the general public; (2) strengthen the cultural development assistance to rural areas and underdeveloped areas; (3) further provide more free cultural service facilities to the public; (4) build systems for the promotion of outstanding Chinese traditional culture; carry out public-based cultural activities and reading campaigns; (5) consolidate and improve website content development to promote China’s mainstream outlook." This demonstrates that the Chinese government attaches great importance to the cultural industry.

The Twelfth Five-Year Plan of China’s Cultural Industry proposes the target that China's cultural industry output value will grow from 400 billion RMB in 2010 to 900 billion RMB by 2015. IDC's research shows that the actual sales revenue was 32.36 billion RMB, an increase of 30.4% over 2009. This figure is estimated to reach 78.93 billion RMB with compound growth rate of 20%. Television, movie, and anime industry will enjoy a steady development too. All of these are the driving force for the expansion of ICT market for digital content industry.

Construction of Ecological Civilization Will Benefit Environmental Protection Related ICT Market

According to the Report: "We should make greater efforts to (1) conserve resources and bring about fundamental changes in the way resources are used; (2) strengthen the conservation process management; (3) greatly cut consumption intensity of energy, water and land to increase utilization rate and economic benefits; (4) promote energy production and consumption reform to support low carbon, new energy and renewable energy industry to safeguard national energy security; (5) strengthen water and land protection and overall water consumption management to build a water conservative society; (6) promote recycling economy to accelerate the reduction and recycling in production, circulation and consumption." The Twelfth Five-Year Plan of Energy Saving and Emission Reduction released in August, 2012 identifies the ten key demonstration projects with the investment of 2.4 trillion RMB.

Where ICT is involved in these projects includes energy-saving reconstruction, contracting energy management processes, industrialization of energy saving technology demonstration, promotion of recycling economy demonstration, and energy-saving capacity building, etc. All these programs will greatly advance the ICT market in environment protection.

"To seize the opportunities for ICT market brought by the 18th Party Congress, IT companies should carefully study and fully understand the Report and China's future macro-economic policies in order to develop arrangements and plans for market entry timing, core capacity building, and new competition-and-cooperation strategies development. For the already competitive IT companies, it is better to enter the market as soon as possible.

In terms of competitive capacity building, the IT companies should put great emphasis on the Third Platform, based on cloud computing, mobile technology, social networking, and big data. As for competition-and-cooperation strategy, comprehensive considerations must be given to the significant value of the eco-system of the whole ICT industry chain," said Lianfeng Wu, Associate Vice President of IDC China.