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Analysis: Technology Sector Jewel in China's Crown
Rising from a low base, the information technology (IT) sector in China will continue to grow at a phenomenal pace with hardware sales spearheading growth.
The comment came from analysts after the recent drop in share price in the global tech, media and telecom (TMT) sector pushed the share prices of the China-listed tech companies down to more attractive levels.
"The fastest-growing sector that drives the country's economy adds the jewel to China's Crown," said Belle Chan, senior technology analyst with Salomon Smith Barney (SSB), one of the world's leading investment bank and broker-dealer under the US-based Citigroup Inc.
On fundamentals, the tech sector in China remains strong, enjoying robust growth from consumption recovery and rising Internet usage, and the companies have competent management, he said.
Chan, also SSB's vice-president and technology research analyst focusing on Hong Kong and China companies in its Asia Pacific Equity Research Center, said they made the predictions because they have perceived that the Chinese government's support continues to play a decisive role in nurturing IT hubs and China's entry to WTO should bring in rising foreign investment and technology know-how.
A recent report on China's technology revealed by SSB researchers showed that the IT sector in China has emerged spectacularly over the past decade with the total IT sales rising to 174 billion RMB yuan (21.21 billion US dollars) in 1999 from a mere 5 billion yuan (609 million US dollars) in 1990. Of the total, hardware represents 78 percent, and software and services make up the balance.
"We expect hardware sales will continue to rise as a result of a consumption recovery in China coupled with rising Internet usage, " Chan said.
Recent monthly sales statistics indicated that PCs are one of the fastest-growing consumer products. Given the limitations of the existing infrastructure, PCs are likely to remain the first choice for Internet-access devices in the short to medium term until access infrastructure is improved via cable and WAP, he said.
The report also showed that overseas-funded firms with advanced technology know-how have been the locomotive for the development of the Chinese IT industry, accounting for 23 percent of IT operations on the mainland.
Commenting on the concern that local players would lose their competitiveness once import tariffs are reduced when China enters the WTO, Otto Wong, managing director and head of SSB's Asia Pacific Equity Research Center, said that they believed this concern is overblown.
In fact, over the past few years, the Chinese government has already cut tariffs on imported electronic goods, suggesting the tariff rate is not the determining factor in PC sales, Wong added.
Successful pricing strategies have enabled local players to dominate the low-priced desktop market, and local manufacturers are also making inroads into the value-added market, with products such as notebooks and servers, Wong noted.
With their extensive distribution networks, products customized for the Chinese market and comprehensive after-sales service, local vendors enjoy a comprehensive advantage over multinational corporations in the mainland market, the managing director added.
Based on the sum-of-the-parts valuations, the SSB analysts said they saw a rose future for the China-listed IT companies, including Great Wall Technology, Legend, Founder and TCL.
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