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  5. The Current Status of China's Electronic Information Industry

The Current Status of China's Electronic Information Industry

August 18 (Friday) 2006

Jianmin Jin
Senior Research Fellow

ABSTRACT

  • China's strategy of "Let informatization pull industrialization, and let industrialization promote informatization" has resulted in the acceleration of informatization and greatly increased growth in the information industry. In 2005 added-value output from the information industry accounted for 7.2% of the GDP, and contributed to 16.6% of the country's economic growth that year. In particular, manufacturing in the electronic information sector (excluding communication services) has shown the most active and rapid growth of all other industries. The ratio of this added value to GDP grew from 2.80% in 2002 to 4.94% in 2005. This paper will examine the recent conditions of China's rapidly growing electronic information sector.

Overview of China's Electronic Information Industry in 2005

According to China's Ministry of Information Industry statistics, total sales for 2005 in the electronic information industry was 3.8 trillion yuan (approximately US$475 billion), up 28.4% from 2004. In recent years China's electronic information industry has maintained growth levels three times that of the GDP growth rate. In terms of sales base, the electronic information industry has continued to outpace the machinery manufacturing and metallurgy industries as the top industry within China's industries.

Looking at the added-value base, however, the scale of the electronic information industry base was only a little over 900 billion yuan (approximately US$112 billion), with a value added ratio (amount of value added / total sales x 100%) of merely 23.4%. This is far below the added value rate of 27.1% of China's industry as a whole. The kind of gap seen in the electronic information industry between the rapid expansion of the scale of the industry coupled with a low value-added structure is evidence for China's role as an assembly base that is dependent upon overseas parts, intermediary goods, and capital goods.

On the other hand, the rapid growth of the electronic information industry is also producing new jobs in China, where the level of unemployed has become serious. The number of electronic information industry-related companies in China jumped from 7,500 in 2001, to 17,600 in 2003 and 67,000 in 2005, with approximately 56,000 of these being manufacturing companies. The number of employees engaged in the industry grew from 3.01 million in 2001 to 4.08 million in 2003 and 7.61 million in 2005 (out of whom 5.51 million are employed in the manufacturing industry).

China's Industrial Structure, Production, and Exporting Conditions

China's electronic information industry primarily consists of computer-related goods, communication equipment, electronic parts and household entertainment equipment. By 2005 the computer-related industry and the electronic parts industry grew strong enough to become the driving force of the electronic information industry as a whole. The growth rates (sales base) of these two industries reached 29%, 4.2% higher than that of the 24.8% of the industry as a whole. Electronic parts-related investment accounted for 55% of total investment in the electronic information industry, showing a growth rate of 48.4%. Promoting the electronic parts industry was one part of the industrial policy to raise the ratio of value added in the electronic information industry.

Within China's computer-related industries, the growth of the software industry (software products, system integration, software services, etc.) is particularly striking. Sales for the software industry reached 390 billion yuan (approximately US$48.8 billion), demonstrating a growth rate of 40.3%. Furthermore, the weight of the software industry within the electronic information industry rose from 6.3% in 2001 to 11.2% in 2005, while approved software companies have reached 11,660, increasing by over 1,000 per year. Additionally, there are roughly 900,000 employees working in China's software industry. Furthermore, China's software exports amounted to US$35.9 billion in 2005, though this was short of the US$50 billion export goal set forth in the Tenth 5-Year Plan, which ended in 2005.

Figure 1 below describes the production output of principal electronic information-related products in 2005. Buoyed by the expansion of the internal and external markets, the ratio of sales to production (sales rate) has remained at over 98%. The vast majority of China's mobile phones, notebook computers, color displays and other products are exported, making China a global production base. China's total export-import level of electronic information-related products in 2005 was US$268.2 billion in exports and US$220.6 billion in imports, showing growth rates of 29.9% for the former and 21.9% for the latter. The ratio of total exports and total imports in China was 35.2% for exports and 33.4% for imports. Additionally, China's trade surplus was recorded as US$47.6 billion, with roughly have of the US$100 billion of China's total trade surplus going toward savings. There has been no change in the essence of China's export-oriented industries.

Figure 1: Production and Export Conditions
for China's Electronic Information-related Products

Product Unit Production Amount (2005 Record) Growth Rate (%) Export Amount Growth Rate (%) Production Amount (2006 Goal)
Mobile Phone 10,000 units 30,354 30 22,800 56 34,000
Digital Switchboard 10,000 lines 7,721 1.3
Mobile Communication Base Equipment 10,000 lines 725 65
Color TV 10,000 units 8,283 11.5 3,975 43.4 9,100
PC 10,000 units 8,084 35.3 4,759 57.7 9,800
Laptop PC 10,000 units 4,565 66 4,131 63.3
Server 10,000 units 318 88.9
Color Display 10,000 units 16,058 58.2 19,800
IC 100 million 266 12.9 216 33.2 340

Source: Ministry of Information Industry

2006 targets for sales and added value in the electronic information industry are 4.6 trillion yuan (approximately US$576 billion, with a growth rate of 21%) and 1.1 trillion yuan (approximately US$138 billion, with a growth rate of 22%), respectively. As a whole, it is expected that large-scale growth will continue as before, though export-import growth has been set at a low rate of approximately 15%. This can be seen as an appropriate judgment, taking into account the effects of the revaluation of the yuan.

The Increasing Role of Foreign Firms

China's electronic information industry is characterized as both export-oriented and foreign capital-led. In 2005, the sales, added value, profits, and exports of foreign firms (including 6,480 firms with 100% foreign capital, merged firms and joint firms) reached 2.4 trillion yuan, 503 billion yuan, 82.2 billion yuan, and US$234 billion, respectively, accounting for 77%, 77%, 77% and 87% of China's total electronic information industry for their respective categories. These figures are all considerably higher than 2004. The export surplus of US$44.8 billion produced by 100% foreign capital firms (2,241 firms) accounted for 94% of China's total.

The total ratio of value added for foreign firms in China is 20.9%, however, which is far behind the 27.6% ratio of local firms. There has been no major change in foreign firms' strategy for using China as an assembly base. Recently, though, there has been increasing activity by foreign firms regarding local management centers and R&D bases, as well as in investment in the electronic parts industry. In the coming years, whether or not foreign firms will be able to increase China's amount of value added will be watched closely.