China - Technology and ICT China - Technology and ICT
China’s information and communication technology (ICT) market is among the most dynamic sectors in the economy. By 2021, the market is projected to reach $8.1 trillion, representing 55% of China’s GDP, according to information technology (IT) consulting firm IDC. China’s ICT imports in 2017 totaled $528 billion, while its exports reached $781 billion. Competition from Chinese firms is strong, as the quality of domestic hardware, software, and services has continued to improve.
As China’s ICT market develops, certain sub-sectors that have been driving growth (e.g., smart phones) are predicted to become saturated; future growth will be fueled by integrating ICT technologies into, and transforming, traditional industries.
For international firms, big opportunities in China’s ICT market are tempered by real challenges. Due to rapidly maturing domestic competition, foreign companies no longer have a dominant market share in many of China’s ICT sub-sectors. Chinese firms have been adept at mastering technologies and shaking up markets, often by offering low prices. U.S. firms are increasingly partnering to stay in the market. As the market matures, there are fewer first-time buyers of ICT. China’s cost advantages have also declined as production is increasingly moved elsewhere.
China’s ICT policy environment presents a serious challenge. China views the sector through a commercial and national security lens. Policies intended to ensure security often appear to do so at the expense of foreign companies’ interests. Issues related to China’s dynamic policy landscape in the ICT market are discussed in greater detail below. Furthermore, despite stronger intellectual property protection, high levels of piracy remain.
China’s ICT Hot Topics and Trends
Implementation of the Cybersecurity Law
China’s first Cybersecurity Law went into effect on June 1, 2017. The law establishes a framework for regulating China’s networks on national security grounds, and for the supervision of the ICT sector more generally. The law details the security obligations of internet products and service providers, institutes rules for the transmission of data, and enhances the rules on personal data protection. China continues to roll out implementing measures for the law. Lack of clarity about how the law will be enforced remains a top concern for many ICT companies active in China’s market.
Data privacy is a critical component of the Cybersecurity Law and is an area where the Chinese government has been particularly active. In 2019, China’s National Cybersecurity Standards Technical Committee (known as TC260), proposed modifications to the Personal Identification Information Specification. This specification, the first version of which went into effect in May 2018, defines what constitutes personal identification information under China’s Cybersecurity Law. China’s new data measures trends attracted significant industry concern due to inconsistencies with international practices on data transfer and data localization, which could heavily impact international businesses’ operations.
Emerging Technology Markets
Industrial big data and the industrial internet are two major efforts aligned with China’s Made in China 2025 initiative. In 2019, there has been 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 technologies. Virtual reality (VR), augmented reality (AR), and artificial intelligence (AI) are also emerging technology areas where China is focused.
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. According to the Semiconductor Industry Association (SIA), China represents 50% ($168 billion) of the $336 billion global semiconductor market. 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, which are intended in part to reduce reliance on international semiconductor imports, create medium and long-term uncertainties for U.S. industry prospects in the Chinese market. While a gap remains between China’s demand and production of semiconductors, with the support of the Chinese government – including significant state funding directed by state-guided investment funds – some Chinese semiconductor companies are looking to develop core technologies that allows China to bridge that gap. In recent years, many new 12-inch semiconductor fab projects have been announced in China, including projects in Xiamen, Hefei, Nanjing, Wuhan, and Chengdu.
Although China is a fast-growing, important market for global cloud computing, the country presents serious challenges for U.S. cloud providers. Regulatory restrictions, including strict requirements to operate with a local partner, 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.
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 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.
Xiong’an New District
On April 1, 2017, President Xi Jinping announced that three counties in Hebei Province would be designated as the “Xiong’an New Area.” Located about 100 kilometers southwest of Beijing, Xiong’an will house institutions and companies currently struggling to find space in the crowded capital. According to a 2017 study by Morgan Stanley, Xiong’an will draw in as much as ¥2.4 trillion ($380 billion) in investment, or thirteen times what China spent on the construction of the Three Gorges Dam. Xiong’an is also expected to help accelerate the development of the wider Beijing-Tianjin-Hebei area, which is intended to be a northern regional powerhouse driving China’s economy, akin to the Pearl River Delta in the south and the Yangtze River Delta in the east.
Chinese officials have emphasized the importance of technological innovation for Xiong’an. China’s top three technology companies—Baidu, Alibaba, and Tencent— have also announced their intention to establish branches in Xiong’an. Government officials have also stated this new area is intended to be a “demo area” for sustainable, modern, and innovative urban model which is open for all cutting-edge technologies. The Chinese government intends to issue a Xiong’an-specific “negative list” for foreign investors. Foreign companies may find business opportunities as Xiong’an’s construction continues.
Policy/Regulation-Led Market Barriers
With the booming growth of China’s digital economy, cybersecurity has become critically important to Chinese regulators. China’s Cybersecurity Law took effect on June 1, 2017 and 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 of now unknown, effect on foreign firms and 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.
Multi-Level Protection Scheme (MLPS)
Foreign firms must comply with China’s Multi-Level Protection Scheme, (MLPS), which seeks to protect information networks from being damaged or attacked. Products are classified from one to five, one being the lowest and five being the most critical to China’s national security, social order, and economic interests. 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. Few foreign companies are licensed to sell products at level three.
On June 27, 2018, China released the draft “Cybersecurity Classified Protection Regulations” (sometimes referred to as MLPS 2.0) for public comment. MLPS 2.0 emphasizes protection of critical information infrastructure (CII), as highlighted in the Cybersecurity Law, and expands the scope of MLPS to cover some emerging technologies such as cloud computing, big data, and internet of things (IOT) technologies. The United States government will continue to monitor development of this measure as it currently remains in the draft phase.
Ministry of Industry and Information Technology (MIIT): http://www.miit.gov.cn/
Ministry of Science and Technology: http://www.most.gov.cn/
China Academy of Information and Telecommunications Technology (CAICT): http://english.catr.cn/
China Electronics Standardization Institute (CESI): http://www.cesi.cn/
China Institute of Electronics (CIE): http://www.cie-info.org.cn/
China Communications Standards Association (CCSA): http://www.ccsa.org.cn/
China Electronics Chamber of Commerce (CECC): http://www.cecc.org.cn/
April 24-26, 2019
2019 China International Big Data Industry Expo
May 26-29, 2019
2019 China International Software and Information Service Fair (CISIS)
June 12-15, 2019
June 13 -15, 2019
June 20-22, 2019
The 11th China International Internet of Things Technologies and Application Exhibition
July 31, 2019
China Digital Entertainment Expo & Conference (China Joy)
August 2-5, 2019
China Beijing International High-tech Expo (CHITEC)
October 24-27, 2019
March 18-20, 2020
China (Shanghai) International Technology Fair (CSITF)
Chinese National Convention Center, Beijing, China
July 17-19, 2020
China Hi-Tech Fair
November 13-17, 2019
U.S. Commercial Service Contact for Technology and ICT Sector
Commercial Service in Beijing
Zheng Xu, Commercial Specialist
Tel: (86 10) 8531-3637
Commercial Service in Chengdu
Haiyan (Helen Hua) Hua, Commercial Specialist
Tel: (86 28) 8558-3992 ext. 6738
Commercial Service in Shanghai
Jane Shen, Commercial Specialist
Tel : (86 21) 6279-7630 ext. 8718
Commercial Service in Guangzhou
Jericho Li, Commercial Specialist
Tel: (8620) 3814-5875
Commercial Service in Shenyang
Dongmei Wang, Commercial Specialist
Tel : (8624) 2322-1198 ext. 8142
Commercial Service in Wuhan
Dongmei Wang, Commercial Specialist
Tel: (8627) 8555-7791 ext. 2811