China - Technology and ICT China - Technology and ICT
Information and communication technology (ICT) is one of the most dynamic market sectors in China's economic boom. China is the world’s second largest ICT market. China’s ICT market will reach USD $844 billion by 2020 according to IDC.. Total imports of ICT products in 201x were USD $528 billion, while and exports reached USD $781 billion. Competition from Chinese firms is strong, as the quality of hardware, software, and services has continued to improve in recent years.
In the next few years, the transformation of traditional industries through Internet technology and Chinese enterprises' participation in 'Belt and Road' initiatives to enter foreign markets will become the main driving forces for the development of China’s domestic ICT market. The transformation of traditional industries by integrating ICT technologies will push forward the application and development of industry sectors such as mobile Internet, cloud computing, Big Data, Internet of Things (IoT), and other emerging technologies, and lead to the rapid development of intelligent terminals along with communication services.
It is predicted by IDC (a well-known IT consulting firm) that the construction of ‘smart cities’, deployment of the IoT, big data and cloud services, and mobility and consumer IT products will be the main drivers of China’s ICT market growth. Compared to 2015, the sales volume of smart phones has increased moderately due to the saturated smart phone market. Research by EnfoDesk, a think tank, demonstrated that China’s big data market also began to increase quickly in 2014 with almost 30 percent annual growth. According to Mr. Liu Lihua, Vice Minister of the Ministry of Industry and Information Technology, China’s big data market reached a size of $31.3 billion in 2015, a 50 percent increase compared to 2014. Forrester, a US-based research institute, reported the total value generated from IoT-related technologies has the potential to become 30 times larger than that of the internet.
While market potential in this sector is great, the ICT market is arguably the most difficult sector to navigate in China. China views the sector through not only a business, but also through a national security lens, and policies intended to ensure security often appear to do so at the expense of foreign companies. Issues related to China’s dynamic policy landscape in the ICT market are discussed in greater detail below.
2016 China’s ICT Hot Topics and 2017 Trends
2016 was a milestone for the Chinese ICT regulatory environment. In November 2016, China enacted its first ever Cybersecurity Law, effective June 1, 2017, which establishes the regulatory framework for promoting cybersecurity as a function of national security and for the supervision of the ICT sector more generally. China continues to roll out implementing measures for the law, , which 54 industry and trade associations from 10 countries criticized in May 2017 as overly vague and presenting a threat to foreign businesses and investment. The central government has launched a flurry of incentive programs including State Council Guidelines for Big Data Development, Cloud Computing Action Plan 2017-2019, State Council National Informatization Strategic Guidelines for Development and Internet Plus Action Plan etc., to provide guidance to ICT industry development.
China has been making efforts to develop a stronger internet industry sector. The amount of cybersecurity and industry policies was increasing throughout 2016. Internet broadband speed improved significantly in 2016, and the number of 4G subscribers exceeded 734 million. China’s 5G rollout has been ongoing. China has been active in 5G international standards development and many domestic firms are beginning trials of 5G technology.
The basic telecommunication carriers are transforming themselves to accommodate the Internet of Things (IoT). New connections, new computing, and new platforms are accelerating the Chinese strategic digital transmission from traditional IT.
Industrial big data and the industrial internet are two major efforts aligned with Made In China 2025. In 2017, there is clear demand for these new technologies, as China’s industrial internet architecture is now in place.
Internet of vehicles (IoV) and smart vehicles will be another emerging subsector with the development and integration of smart platform/vehicle operating system, artificial intelligence (AI) and 5G.
Virtual reality (VR), augmented reality (AR), and artificial intelligence (AI) are the leading emerging technologies which China has put forth great effort to develop. China seeks win-win cooperation in these new areas. Technology-based cooperation and market opportunities are predicted to be abundant in 2017.
Semiconductors and Semiconductor Manufacturing Equipment
Over the past decade, China has consistently ranked as one of the largest and fastest growing country markets for U.S. semiconductors and semiconductor manufacturing equipment, and will continue to do so in the near-term. Global headwinds brought on by slowing global demand for ICT products, slowing transitions to smaller IC manufacturing nodes, and a strong dollar, however, will be exacerbated by China’s opaque policies and unprecedented, state-led investment to develop an indigenous semiconductor industry. China’s policies create medium and long-term uncertainties for U.S. industry prospects in the Chinese market.
Regionally, annual sales increased 9.2 percent in China, leading all regional markets. Besides Japan (3.8 percent), all other regional markets—Asia Pacific/All Other (-1.7 percent), Europe (-4.5 percent), and the Americas (-4.7 percent)—saw decreased sales compared to 2015. According to the Semiconductor Industry Association (SIA), China represents 50 percent ($168 billion) of the $336 billion global market. U.S. companies had 51 percent of worldwide semiconductor sales, while Chinese companies only had a 4 percent share in 2016.
Most semiconductors and semiconductor manufacturing equipment have duty-free access to the Chinese market under the existing WTO Information Technology Agreement. As the ITA Expansion Agreement is rolled out, the majority of tariffs will be eliminated on the 201 products within three years, with reductions beginning in 2016. Reductions will include certain types of semiconductors and semiconductor manufacturing equipment, accessories; and parts whose coverage is in question under the original Agreement will be eligible for duty free trade. This will help U.S. exporters compete on level terms with non-U.S. suppliers, creating potential opportunities for U.S. companies. According to the Nairobi Ministerial Declaration on the Expansion of Trade in IT Products, the first set of tariff cuts was to be implemented on July 1, 2016 and the second set no later than July 1, 2017, with successive reductions taking place on July 1, 2018 and effective elimination no later than July 1, 2019. China implemented the initial cuts late—in September 2016, due to legislative approvals—but is now on track.
Although China is a fast-growing, important market for global cloud computing, the country presents serious challenges for U.S. cloud providers. Regulatory restrictions, some aspects of governmental decision making, and local competition make China a problematic market for even large, experienced U.S. providers. Operating in China therefore requires substantial resources, flexibility, and a long-term outlook.
As in other sectors, the main challenge for U.S. firms in seizing cloud-related opportunities in China is its regulatory environment. Foreign cloud providers are required to partner with local companies to serve customers in China, raising questions about how much control foreign providers will ultimately have over their joint ventures, given that their Chinese partners must fully manage daily operations of internet data centers (IDCs). Moreover, certain regulatory requirements necessitate that extra care be taken to avoid hosting certain content and create uncertainty about some industries’ ability to contract with foreign cloud providers. To deal with these challenges, U.S. companies have found it necessary to completely isolate their China cloud systems from their global networks, creating technical inefficiencies and other operational complications.
Smart City Development in China
“Smart City” is a loosely-defined term applied to everything from urban design to higher education policy. But the most accepted definition is the use of information technology to solve urban problems including related to the management of traffic and utilities. Database and network systems developed in Silicon Valley to power Google, Amazon, and Facebook—not to mention Taobao and WeChat—are now being connected to objects in the physical world such as meters, sensors, cameras, and control systems in pilot projects around the world. Smart city systems are managing traffic, stabilizing electric grids, allocating and coordinating emergency services, and providing more city information to people and managers than has ever been available before.
New urbanization is one of the key strategies in China’s 13th Five Year Plan (2016-2020) and creating smart and low-carbon cities is an important part of such a strategy. According to the plan, China will significantly increase investment in smart city development. The Ministry of Housing and Urban-Rural Development is now in the process of putting together a 13th FYP smart cities planning forecast, and during the next five years, the overall scope of investment in China’s smart cities will likely exceed RMB 500 billion.
In 2014, China’s National Development and Reform Commission (NDRC) released the Notice on the Guiding Opinions on Promoting the Healthy Development of Smart Cities, which clearly points out that China needs to attract private capital to participate in the building of intelligent cities through the granting of concessions, service procurement and other mechanisms. The NDRC notice also encourages eligible businesses to issue debt and raise capital to start smart city construction projects. Foreign companies have the opportunity to leverage technological, operational and management advantages to participate in smart city construction in areas such as smart governance, smart industry and smart public services.
There are more than 300 smart city pilot sites in China, including the 193 local governments and economic development zones that the Ministry of Housing and Urban and Rural Development (MOHURD) picked last year as official smart city pilot project sites. MOHURD is working to make a RMB 100 billion ($16 billion) investment fund sponsored by the China Development Bank available for eligible pilot cities. Investment from local government and private sources has also been growing fast. There’s no standard definition of the sector, but some estimates foresee RMB 2 trillion ($320 billion) of investment into smart city development projects over the next 10 years. A more focused projection at the end of 2015 that looked only at the “smart” technology component of smart city projects anticipated a cumulative market of RMB 28.5 billion ($4.6 billion) over the next 10 years in mainland China, Hong Kong, and Taiwan. Defined broadly or narrowly, the investment will be huge.
These enormous sums, rapid technology advances, and vigorous marketing of smart city products from both domestic and international companies, have created a booming and chaotic marketplace. Both boosters and critics of smart cities are now concerned that local governments eager to juice their economies will see this indiscriminate encouragement as a blank check. In Beijing, the effort now is to create standards and guidelines to manage this flood of new projects. In 2016, all the ministries involved joined with the Standardization Administration of China to create working groups whose job is to manage and standardize smart city development, though their activities have not been publicized.
The smart city sector is not a single industry, but an emerging collection of technologies cutting across many industries – transportation and utility infrastructure, network equipment, telecom and wireless, data analytics, electronics equipment, and software applications. To manage the torrent of information, applications rely heavily on new IT technologies such as cloud computing and “big data” analytics.
For international companies, huge opportunities in China are tempered by real challenges. The local government market is famously opaque, and smart city applications sometimes involve areas—digital mapping, for example—considered sensitive for non-Chinese firms. U.S. firms in particular face increased scrutiny in the wake of the Congressional investigation of Huawei, the 2013 revelations of global NSA surveillance from whistle-blower Edward Snowden, and the U.S. Justice Department’s 2014 move to indict and name five members of the Chinese military to its most-wanted list for cyber-attacks against U.S. companies. This last move provoked several countermeasures from China, including the banning of Microsoft’s Windows 8 from government offices and the reported phasing out of IBM servers from Chinese banks. Actions to define new security testing processes for information technology products and services only further underscore the difficulties that international firms may face in China.
But the most significant challenge may be China’s rapidly maturing domestic competition. China is no longer a developing-nation market in which international companies compete only with one another. Chinese firms have been adept at mastering technologies and shaking up markets, often by offering low prices. Firms like Huawei and ZTE are becoming increasingly important players in the world market. U.S. firms are increasingly partnering to stay in the market. For example, Microsoft is partnering with a large state-owned enterprise (SOE) to develop a “secure & controllable” version of Windows 10 for use by the Chinese government and SOEs.
Policy/Regulation-Led Market Barriers
China enacted its first ever Cybersecurity Law in November 2016. The law, which took effect on June 1, 2017 is designed to promote national security. Implementing measures for the law – including those on cybersecurity review and cross-border data flow – will have a large, but as yet unknown effect on the development of the ICT industry as a whole. China continues to introduce new laws and measures related to the Cybersecurity Law for public comment in advance of future implementation. From January to May 1, 2017, the Chinese government released a new draft Telecom Service Licensing Requirement, draft Cryptography Law (in NPC reading process), and new State Radio Administrative Measure, and a series of cybersecurity technology product standards (led by TC260).
Multi-Level Protection Scheme (MLPS)
In 2007, the Chinese Ministry of Public Security (MPS), the leading ministry tasked with combating cybercrime and protecting critical infrastructure, implemented the Multi-Level Protection Scheme (MLPS). Designed to restrict the sale of foreign ICT products to government, Party, state-owned enterprise, and institutionally important web sites in order to protect information networks according to their relative impact on national security, social order, and economic interests were the system to be damaged or attacked. The classification levels range from one to five, one being the lowest and five being the most critical to China’s national security. Technology products at MLPS levels three and above must include at least some domestic IP. MLPS also requires that traditional IT products at level three or above be subject to rigorous testing and review guidelines under the China Compulsory Certification for Information Security Products (CCCi) for government procurement. As a result of the 2014 JCCT discussions, companies are no longer required to use Chinese encryption for MLPS. Few foreign companies are licensed to sell products at level three. The State Council is in the process of updating and expanding MLPS to cover new high growth sectors including big data, cloud computing, and mobile internet.
Telecom Services Catalog
China’s March 2016 Telecom Services Catalog provides for the licensing of all telecoms services - including cloud computing - as either basic or value-added telecom services. Various licenses are required to provide services within each specific sub-category. Foreign firms are prohibited from operating numerous services – including cloud – outside the structure of a joint venture partnership with a Chinese company. The Catalog expands value-added telecom services licensing requirements to include a host of Internet-based business activities and services that have generally been unregulated in China, and are unregulated in most other markets. MIIT released a Telecom Service Licensing Requirement on February 7, 2017 to enforce the Catalog.
CBRC Guidelines and CIRC Informatization Rules
China issued an official notice (CBRC/MIIT Joint Circular #57) on April 13, 2015 to its banking sector, including Chinese and foreign-owned banks, suspending for revision its earlier Guidelines for Secure and Controllable Information Technology in the Banking Industry for 2014-2015 (CBRC Circular  317, the Guidelines). The Guidelines, as previously written, would have required banks in China to ensure that at least 75 percent of their ICT products and services were “secure and controllable,” by 2019. The guidelines were suspended – but not withdrawn - following an international outcry, including from the United States. China committed during President Xi’s September 2015 state visit to the United States that ICT cybersecurity regulations “should be consistent with WTO agreements, be narrowly tailored, take into account international norms, be nondiscriminatory, and not impose nationality-based conditions or restrictions, on the purchase, sale, or use of ICT products by commercial enterprises unnecessarily.” Nevertheless, U.S. and other foreign ICT companies continue to report that an informal whisper campaign continues to affect their sales to the banking and other industries.
Cybersecurity Review Regime
The Cyberspace Administration of China’s (CAC) new Measures for the Security Review of Network Products and Services implementing certain requirements in the Cybersecurity Law took effect on June 1, 2017. CAC’s Cybersecurity Review Committee together with other relevant government departments, aCybersecurity Review Expert Panel and a third-party testing institutions will perform security reviews on ICT products prior to their sale to operators of critical information infrastructure. Regulators for the Banking, telecommunications, energy, and transportation industries will establish their own procedures for the review of ICT products by their respective industries, while ICT products in use by all other industries will undergo review in a process led by CAC..
Trade Show & Events
SEMICON China 2016, Shanghai, March 15-17, 2016
SEMICON China is one of the most important events for the semiconductor industry in China. 15-17 March 2016
InfoComm China, Beijing, April 12-14, 2017
InfoComm is the biggest audio and video system exhibition in China.
NEPCON China 2018, Shanghai, April 24-26, 2018
NEPCON China is one of the largest and longest running trade and sourcing events in Asia, featuring well-known brands in electronics manufacturing
China (Shanghai) International Technology Fair (CSITF), Shanghai, April 20-22, 2017
CSITF is a national-level fair specifically for international technology trade.
CES Asia, Shanghai, June 7-9, 2017
CES Asia is the Asian version of well-known Las Vegas Consumer Electronic Show.
The 7th China International internet of Things Technologies and Application Exhibition, Shenzhen, August 16-18, 2017
The exhibition offers a platform for businesses in the RFID, information perception, and smart sensor sectors.
13th Asia Electronics Exhibition in Shanghai (AEES 2016), November 8-10, 2016
AEES is organized by five leading electronic exhibition organizers in Asia. AEES promotes cooperation between Chinese and overseas electronics and IT enterprises.
ITS EXPO, Shenzhen, June 23-25, 2017
ITS is one of the largest l intelligent transportation industrial expos in Asia.
China Beijing International High-tech Expo (CHITEC), Beijing, June 8-10, 2017
CHITEC is an annual technology expo held in Beijing sponsored by a number of national government agencies.
China Digital Entertainment Expo & Conference (China Joy), Shanghai, July 27-30, 2017
China Joy is a leading event in China covering gaming, comics, and other relevant industries.
Ministry of Industry and Information Technology (MIIT)
Ministry of Science and Technology
China Academy of Information and Telecommunications Technology (CAICT)
China Electronics Standardization Institute (CESI)
China Institute of Electronics (CIE)
China Communications Standards Association (CCSA)
China Electronics Chamber of Commerce (CECC)
U.S. Commercial Service Contact for Technology and ICT Sector
Jane (Xia) Shen, Jane.Shen@trade.gov
T: +86 21-6279-8718
M: +86 158-0077-6179