IT & Software Sector China

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Produced by:

IT & Software

Sector

China

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I. Sector Overview

1. Sector Highlights 2. Sector Importance 3. Chinese IT Market 4. Investments 5. Retail 6. Industry Forecast 7. Government Policy

II. Hardware

1. Subsector Highlights

2. Hardware Market Segmentation 3. Computer Industry

4. Computer Industry Employment & Output 5. Computer Penetration

6. Computer Prices

7. Computer External Peripheral Equipment Industry 8. Peripherals Industry Employment & Output 9. Industrial Production

10.Exports & Regional Position

III.Software & IT Services

1. Subsector Highlights

2. Software Revenues

3. Software Market Segmentation

4. IT Services Market Size & Segmentation 5. Software & ITS Labour Market

6. Industry-oriented Software Market 7. Cloud Computing

8. IT Outsourcing 9. IT Security

IV. Main Players

1. Great Wall Technology Company Limited

2. Great Wall Technology Company Limited (cont’d) 3. Digital China

4. Digital China (cont’d) 5. TPV Technology Limited

6. TPV Technology Limited (cont’d) 7. Neusoft Corporation

8. Neusoft Corporation (cont’d) 9. Inspur Group Co., Ltd.

10.Inspur Group Co., Ltd. (cont’d)

V. Regional Distribution

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Sector Highlights

While rising disposable incomes are pushing the industry forward, a number of challenges remain in place. Some general economic uncertainties continue to weigh in on IT investment decisions of local businesses, particularly small and mid-sized ones, who are also the hardest-hit by the profit pressures throughout the sector. Furthermore, China has for a long time been notorious for its problems with intellectual property rights protection and software piracy, and these issues continue to take their toll on the sector development. In spite of current reforms, the regulatory climate still requires major improvements.

China is the country with the largest number of both internet users and mobile users in the world, yet due to its lower starting point and the uneven rate of modernisation of different regions, large parts of the country remain technologically underdeveloped. Some of the country's major cities are among the global leaders in the IT industry, while smaller towns and rural regions as well as regions in the central and western part of the country are lagging far behind. However, the government seems to be determined to bridge this gap, and its efforts are expected to open new areas for development in the industry on which Beijing relies heavily for increasing the nation's productivity and, ultimately, growth.

The IT industry is seen as one of the pillars among the emerging industries in China and a key factor for the country's overall economic development. While China's progress in recent years has been significant, there is a lot of hidden potential in the IT industry and with favourable government policies in place coupled with the ever-increasing need for industry upgrades, the prospects for the next few years look promising.

Development

Disparity

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Comments

Sector Importance

In 2012, China was the fourth-biggest spender on IT in the world, behind the United States, Japan and Germany, and is expected to have risen to second place within 2013. While the market size remains about a third of that in the United States, the industry growth rate in 2013 of approximately 8.3% is double that of the U.S., and is expected to reach double digits in 2014.

Sector Importance

BMI, National Bureau of Statistics, General Administration of Customs

2008 2009 2010 2011 2012 2013e

IT Market Value, RMB bn n/a n/a 625.9 689.2 764.2 832.6

GDP, RMB bn 31,405 34,090 40,151 47,310 51,894 57,000

Share of GDP n/a n/a 1.55% 1.48% 1.48% 1.46%

Internet Users, mn 298 384 457 513 564 n/a

Mobile Internet Users, mn 118 233 303 356 420 n/a

Internet Penetration, % 1.2% 2.3% 3.0% 3.6% 4.2% n/a

China Software Exports, USD bn n/a 18.5 20 30.4 36.8 n/a

Total Exports, USD bn n/a 1,202 1,578 1,898 2,049 n/a

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Chinese IT Market

IT Market Size, RMB mn

 The Networked Readiness Index indicates the ability of countries to make use of opportunities offered by information and communications technology on a scale of 1 to 7. In 2012, China lost 7 positions in terms of networked readiness, dropping to 58th_place and sliding behind Russia, thus losing its lead among BRIC countries.

 According to the Global IT Report of 2013, China’s institutional framework and especially its business environment present serious shortcomings that stifle entrepreneurship and innovations. Another major issue is the limited or delayed availability of new technologies (107th_{position globally) despite the} presence of pockets of technological excellence in certain sectors and regions of the country.

 The report also notes the disparity between IT usage among individuals, only 40% of whom use internet on a regular basis, vs. the business sector, which uses IT extensively and is among top 40 of the world in that aspect.

Networked Readiness Index 2013

BMI, World Economic Forum's Global Information Technology Report 2013

344,769 372,133 409,655 441,395 38,308 41,246 44,962 47,978 42,563 44,913 44,962 43,713 75,113 86,145 99,351 113,986 125,188 144,724 165,304 185,484 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 2010 2011 2012 2013 (est) IT Services Software Other Hardware Servers PC

Index Value Global Rankiing

Political & Regulatory Environment 3.97 56 Business & Innovation Environment 3.78 105 Infrastructure & Digital Content 3.46 83

Affordability 5.82 40 Skills 5.01 53 Individual Usage 2.96 83 Business Usage 3.86 35 Government Usage 4.58 38 Economic Impacts 3.08 83 Social Impacts 4.29 42 Oveall Index 4.03 58

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Comments

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Investments

Amid the global economic slowdown, foreign investments have been fluctuating as international investors lost their grip on disposable funds for investment. The overall level of investments in China, however, has remained largely unchanged, as the increasingly complicated IT infrastructure and the market’s intense dynamics and competition have left enterprises little choice outside of upgrading their businesses by investing in IT.

Fixed Asset Investments (in RMB bn) Foreign Direct Investments

National Bureau of Statistics, Ministry of Commerce

695 795 1,032 1,375 1,695 39 50 68 85 184 2008 2009 2010 2011 2012

Computer, Communications & Other Electronic Equipment FAI Software and Information Technology Services FAI

8,451 7,174 8,432 7,308 6,585 2,775 2,247 2,487 2,699 3,358 1298 1,286 ₁₁₄₀1,081 1304 1,046 1360 993 1035 926 2008 2009 2010 2011 2012

Computer, Communications, & Other Electronic Equipment, USD mn Info Transmission, Computer Service & Software, USD mn

Computer, Communications, & Other Electronic Equipment: Number of Contracts

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Retail

IT Retail Revenues

IT Retail Profits

IT Retail Finances (in RMB bn)

IT Retail Revenues 63 62 76 106 140 28.1% -1.4% 21.5% 39.9% 32.2% -10% 0% 10% 20% 30% 40% 50% 0 20 40 60 80 100 120 140 160 2008 2009 2010 2011 2012

Revenues, RMB bn Growth y/y

2008 2009 2010 2011 2012 Current Asset 16.1 19.1 25.9 31.5 37.6 Total Assets 19.9 23.6 31.8 37.7 46.5 Total Liabilities 12.3 14.8 20.8 24.5 30.8 Shareholder Equity 7.5 8.9 11.0 13.2 15.6 Cost of Sales 58.1 57.0 70.0 97.9 129.6 Financial Expenses 0.2 0.2 0.3 0.3 0.5 Total Purchases 65.6 62.8 75.7 113.8 152.4 Total Purchases: Imports 0.1 0.3 0.4 0.4 1.3 Inventories 5.7 7.1 7.4 9.7 10.7 1.2 0.6 1.3 1.7 1.5 45.4% -52.9% 122.7% 30.9% -11.6% -100% -50% 0% 50% 100% 150% 0 0.5 1 1.5 2 2008 2009 2010 2011 2012

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Comments

Industry Forecast

Research firm Technavio expects the overall IT market in China to grow at a CAGR of 11.9% over the forecast period. Business upgrades, growth of IT talent and implementation of new technologies, often backed by the government, are to remain the major growth drivers in the industry, together with rural regions, 2nd_{and 3}rd_{-tier cities rising demand, the wider adoption of e-commerce and the ongoing modernization in} education and healthcare, among other sectors.

IT & Software Industry Forecast

Technavio 123 137 153 172 193 11.1% 11.3% 11.8% 12.2% 12.4% 10% 11% 11% 12% 12% 13% 0 50 100 150 200 250 2012 2013 2014 2015 2016

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Government Policy

Informatisation Development Plan Five-Year Plan Government vs. Piracy

In October 2013, the MIIT unveiled the Informatisation Development Plan, a joint policy for the implementation of the12th Five-Year Plan for National Economic and Social Development (2011-2016) and the National Informatisation

Development Strategies (2006-2020). According to the plan, by 2015 the country is to make substantial progress in integrating IT with industrialisation and

promoting its use in all aspects of its social and economic development. China is aiming at bringing its National Informatisation Index to a level of 0.79 by 2015, up from 0.707 in 2010.

According to the 12th Five-Year Plan on the Development of the Software and IT Service Industry, released in June 2012, software revenues are to reach over RMB 4 trillion by 2015, growing at over 25% a year, and software exports are to exceed USD 60 trillion. The focus of sector development is to fall on infrastructure software, industrial software and industry solutions, embedded software, data security software and services, information systems integration services, information technology consulting services, digital content processing, service outsourcing, services for emerging information technologies, and integrated circuitry design.

The Chinese government has taken an active stance against the widespread use of pirated software. Between 2010 and April 2013, it undertook a

campaign which included the purchase of 3.23mn units of office software and a series of extensive inspections among government agencies on central and provincial level. Besides, in August 2013 it posted a circular which urged governments at all levels to use legitimate software in computer systems.

The main body regulating the IT industry is the

Ministry of Industry and Information Technology (MIIT), which in 2008

replaced the Ministry of Information Industry. The ministry regulates wireless, Internet, broadcasting, communication, software and electronic goods markets.

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Subsector Highlights

Leading IT The hardware subsector dominates China's IT industry, accounting for nearly two-thirds of the total market value and

still offering many investment opportunities, thus remaining a major driver for overall industry growth.

Government Role

The government subsidies for purchases in rural areas has had a strong positive impact on demand of personal computers. Also, the public sector reform aimed at enhancing the country’s administrative capabilities by means of implementing new technologies is also widely supportive for the sector.

Tablets & Laptops

A notable shift from desktop PCs to laptops & tablets is one of the defining characteristics for the subsector. Sales of tablets more than doubled over 2012. Meanwhile, mobile computing is also gaining further ground against more traditional platforms.

Servers The demand for servers in China is also rising with the major reason for that being the large number of new small and medium enterprises in the economy which have spurred as a result of prolonged economic growth and whose business activity requires increasingly complicated data processing and network capacities..

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Comments

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Hardware Market Segmentation

Hardware industry in China is rather concentrated, with the three major players controlling almost half of the market. All major companies in the subsector are foreign, with the notable exception of market leaders Lenovo.

Hardware Segmentation by Market Share, 2012 Hardware Segmentation by Product, 2012

Technavio Lenovo 29% Dell 10% HP 10% Others 52% PC 42.0% Servers 15.9% Network Equipment 12.1% Storage Devices 10.1% Peripherals 19.9%

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Comments

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Computer Industry

In 2012, China became the largest PC market in the world by volume, overtaking the former leader USA.

Intense competition is squeezing profits of Chinese computer manufacturers, whose margins are currently about 3% on average – a level which, according to researchers BMI, compares to around 4% for the Asian markets.

Computer Industry Revenues & Profit Computer Industry Financial Data, in RMB bn

Ministry of Industry and Information Technology 1,713 1,591 1,956 2,168 2,302 41 36 50 64 79 8.6% -7.1% 22.9% 10.8% 6.2% 2008 2009 2010 2011 2012 Revenues, RMB bn Profits, RMB bn Revenues Growtth, y/y

2008 2009 2010 2011 2012

Total Assets 582.3 761.3 891.5 883.8 939.5 Total Liabilities 400.5 524.0 611.6 595.8 636.2 Cost of Sales 1,405.5 1,492.7 1,841.6 2,029.3 2,022.8

Total Taxes Paid 6.8 6.7 14.7 16.4 23.5

VAT Paid 6.2 6.1 13.8 14.1 20.4

Delivery Value for

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Computer Industry Employment & Output

Employment Output & Sales Value

Ministry of Industry and Information Technology 1.51 1.40 1.66 1.90 1.85 1,457 1,585 1,609 1,209 1,273 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2008 2009 2010 2011 2012

Average Number of Employees, mn Number of Enterprises

1,529 1,599 1,917 2,187 2,186 1,490 1,562 1,900 2,158 2,273 2008 2009 2010 2011 2012

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Computer Penetration

Average Number of Computers per 100 Urban Households

 Computer penetration in China remains low by developed country standards and is expected to resume its growth into the next few years, although inevitably losing some momentum mostly due to the increased use of smartphones.

 Smaller towns and rural regions remain significantly underpenetrated and will likely see the highest growth over the next new years.

 In 2012, the amount of computers per urban household in first-placed Shanghai municipality (144.4) was more than 2.5 times greater than that of the central Qinghai province (55.7) which took the last place in the ranking.

National Bureau of Statistics 30 50 70 90 110 130 150 2007 2008 2009 2010 2011 2012

National Shanghai Guangdong Beijing

Fujian Zhejiang Hebei Sichuan

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Comments

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Computer Prices

The drop in prices since early 2012, clearly seen on the charts above, is largely due to the increasing competition in the markets, as well as the trend of shifting consumer preferences towards low- to mid-range tablets and mobile devices, which is expected to remain a major factor in the industry for some time to come. Another key moment is the influence of 2nd_{and 3}rd_{tier markets where vendors are competing for} consumers with less purchasing power than those in major cities.

Tablet Computer Average Price Desktop PC Average Price, RMB

GFK, National Bureau of Statistics

4,000 4,050 4,100 4,150 4,200 4,250 4,300

36 Cities Major Brand Desktop PC Average Price, RMB 2,535

2,349

2,288

H1 2012 H2 2012 H1 2013

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Computer External Peripheral Equipment Industry

Peripheral Equipment Industry Revenues & Profit Peripheral Equipment Industry Financial Data, in RMB bn

Ministry of Industry and Information Technology

2008 2009 2010 2011

Total Assets 277.5 329.5 443.9 417.1

Total Liabilities 164.2 191.1 281.5 250.9

Cost of Sales 548.3 513.5 769.4 816.3

Total Taxes Paid 3.7 3.3 10.0 6.0

VAT Paid 3.5 3.1 9.5 4.8

Delivery Value for Export 471.0 410.7 661.6 693.8 716 557 821 876 20 17 25 29 2.1% -22.2% 47.5% 6.7% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 0 100 200 300 400 500 600 700 800 900 1000 2008 2009 2010 2011 Revenues, RMB bn Profits, RMB bn Revenues Growtth, y/y

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Peripherals Industry Employment & Output

Employment Output & Sales Value

Ministry of Industry and Information Technology 0.89 0.81 1.05 1.12 1,005 1,121 1,125 854 0 200 400 600 800 1000 1200 0 0.2 0.4 0.6 0.8 1 1.2 2008 2009 2010 2011

Average Number of Employees, mn Number of Enterprises

609 550 830 905 590 535 825 892 2008 2009 2010 2011

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Industrial Production

Industrial Production

National Bureau of Statistics

2008 2009 2010 2011 2012 _Jan-Nov2013

Computers, mn n/a 194.1 254.8 350.2 384.0 335.8

Computer Workstations, th n/a 123.8 184.0 154.0 149.0 n/a

Notebooks, mn 110.3 150.1 185.9 244.1 252.9 241.6

Micro Computers, mn 147.0 182.2 245.9 325.5 354.1 313.5

Monitors, mn 133.6 130.2 138.5 126.3 127.0 120.9

Flat Panel Display Monitors, mn n/a 79.3 106.6 85.5 74.3 n/a

Servers, th n/a 1,876.5 2,099.0 8,338.0 1,279.0 n/a

Printers mn 43.3 36.4 60.7 55.2 70.6 66.8

Hard Disk Memory, mn n/a 126.6 148.4 154.9 183.3 n/a

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Exports & Regional Position

With the huge number of IT companies native to China, the country’s imports of IT hardware and software products are essentially negligible. On the other hand, China is the leading hardware exporting country in the world.

Hardware Product Exports (in units mn) Asia-Pacific Hardware Market by Share of Total Value, 2012

General Administration of Customs, Marketline

China 37.1% Japan 30.6% India 7.8% South Korea 6.5% Rest of Region 17.9% 2007 2008 2009 2010 2011 2012 Personal Computers 8.7 13 12.8 23 13.1 34.1 Notebook Computers 72.7 98.8 110.5 138.1 169.7 209.5 Hard Disk Drives 22.3 50.2 27.9 40.6 119.6 286.3 Monitors 114.9 84.7 87.1 69.4 63.2 52.4 Printers 9.8 1.8 10.2 17.5 16.4 31.4

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Subsector Highlights

Importance

While still only accounting for 34.6% of total industry – a level much lower than developed nations where it

dominates over hardware – the software & IT services subsector is gradually increasing its importance and this trend is only to deepen in the years to come.

Big Cities Concentration

In 2012, 55% of the software industry’s revenues came from 15 major cities across the nation whose contribution amounted to a total of RMB 1.36 trillion. The gap between major cities and the rest of the country has widened as their annual growth in 2012 reached 31.4%, compared to a national average of 28.5%.

Demand

Big data, cloud services, mobile computing and social networking have established themselves as the main current sources of consumer demand in the subsector. In addition, the increasing need for software & IT services

customization is expected to further boost demand.

Pressure

The chief difficulties encountered by companies in the segment include fierce competition, receding demand from international markets and the significant disparities in the level of development between the different regions within China.

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Subsector Highlights

Expected Consolidatio n

The IT subsector is expected to further consolidate over the next few years as it remains lacking in core

technologies and consistent high quality software products. As far as high-end software products are concerned, foreign companies dominate the market with a share of over 70%.

IT Services Development

Although the IT services segment is a relatively new one in China, its expansion has been taking place at a rapid rate with an annual growth of 6.8% over the last five years. Yet it only accounts for about a fifth of IT investments in China, which is about half the levels common for developed countries.

Business

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Software Revenues

While far from being narrowly specialized in software, Huawei has retained its leading position in China in terms of revenues from software business for a 12th_{consecutive year.}

The threshold of minimum revenues for the top 100 companies in China has risen by 29% in 2012, reaching RMB 779bn. The total revenues of the leading 100 has increased by 7.8% to RMB 366.7bn.

As much as 76.3% of the software revenues in 2012 came from the Eastern China region, which was slightly less than its contribution of 77.0% in 2011.

Software Industry Revenues Top Companies by Software Business Revenues (2012)

Ministry of Industry and Information Technology, China Electronics News Agency 951 1,336 1,847 2,502 2,530 18,010 20,719 22,788 28,327 31,624 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2008 2009 2010 2011 2012

Sales Revenues, RMB bn Number of Software Enterprises

Company Revenues (RMB bn) 1. Huawei 101.8 2. Haier 37.9 3. Inspur 9.5 4. Founder 9.5 5. Nanjing Nari 7.4 6. Nanjing Lianchuang 7.2 7. Neusoft 6.9 8. China UnionPay 6.0 9. Aisino 5.7 10. Digital China 5.6

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Software Market Segmentation

Software Segmentation by End-users, 2012

Software Market Brand Structure, 2012

Software Segmentation by Product, 2012

Comments Technavio Software Products 31.12% System Software 22.23% Embedded Software 17.45% Design and Development 9.36% Others 18.84% Banking, Financial Services & Banking 24.1% Telecom 18.3% Manufacturing

16.2% Government 10.3% Healthcare 5.7% _{Power 5.1%} Oil & Gas

4.1% Transportation 2.6% Utilities 1.7% Madia & Communicatio n 1.9% Others 10.0% Digital China 5.6% IBM 5.5% Mircosoft 3.1% Yonyou 2.8% Neusoft 2.6% Oracle 2.5% SAP 1.6% Baosight 1.6% Inspur 1.2% China National Software & Service 1.1% Others 72.4%

Low regulation and benign growth perspectives both in the subsector and the country’s economy in general have been attracting an increasing number of new players to the Chinese software & IT services industry, which is one of the friendliest for foreign companies. As a result – unlike the hardware segment – the subsector’s degree of fragmentation is very high, with a large number of participants, none of whom enjoys a dominant market presence.

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Comments

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IT Services Market Size & Segmentation

With the market being fragmented and very competitive, the four largest firms account for only 18.2% of total revenues in the IT services, and the largest 100 companies – for about 30% of total. Out of about 9,800 providers of IT services, by far the largest part of enterprises operating in the industry consists of small or medium-size local companies, providing low-cost services to the public.

IT Services Segmentation, 2012 Market Size

Technavio, BMI Network Services 22.3% System Integration 20.2% IT Outsourcing Services 15.9% Maintenance & Support 12.3% IT Consulting 10.5% Education & Training 8.8% Other Services 10.0% 125.2 144.7 165.3 185.5 15.6% 14.2% 12.2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0 20 40 60 80 100 120 140 160 180 200 2010 2011 2012 2013e

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Comments

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Software & ITS Labour Market

One of China’s major strengths in the IT market is the abundant internal sources of IT talent. The number of universities offering courses in IT is increasing and the quality of specialists is generally high, just as is their appeal to many companies in the industry, including those from developed countries. Also, besides university, a number of foreign companies have also started their own programs aimed at preparing large numbers of Chinese IT professionals for future employment.

Employment Info Transmission, Software & ITS

National Bureau of Statistics 1.50 1.60

1.74 1.86

2.13 2.23 2.24

2007 2008 2009 2010 2011 2012 Jan-Sept

2013 Info Transmission, Software & ITS Number of Employees, mn

69.91 86.28 99.62 117.17 147.56 176.94 130.85 47,700 54,906 58,154 64,436 70,918 80,510 58,892 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 0 50 100 150 200 250 300 2007 2008 2009 2010 2011 2012 Jan-Sept 2013 Total Wages, RMB bn Average Wage, RMB

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Industry-oriented Software Market

Market Size

Segmentation by End-users, 2012

Segmentation by Product Type, RMB bn

Comments CCID Consulting 52.3 61.6 72.9 16.7% 17.8% 18.3% 16% 16% 17% 17% 18% 18% 19% 0 10 20 30 40 50 60 70 80 2010 2011 2012

Market Size, RMB bn Annual Growth

4.8 5.7 8.2 9.8 6.8 8.3 3.1 3.6 38.6 45.5 0 10 20 30 40 50 60 70 80 2011 2012 Embedded Industrial Software Coordination & Integration Software Product Control Software Product Management Software Large Enterprise 44.7% Medium Enterprise 30.0% Small Enterprise 25.3%

China has become the major driver of global growth in the industry-oriented software segment. The main growth factors for the segment include, on one hand, the upgrades and

transformations taking place within the industry, and on the other, the efforts on part of local companies to actively exploit their competitive strength of offering localized software services to Chinese enterprises.

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Cloud Computing

Public Cloud Computing

 In China, cloud computing is only making its initial steps and is largely underdeveloped. It is being used mostly internally by local companies, and under the current regulatory framework it would be extremely difficult for foreign companies to offer cloud

computing services.

 Most of the revenues in the segment of public cloud computing are generated by online platforms such as Alibaba’s marketplaces Taobao and Tmart,

Tencenet’s Weixin (Wechat) social networking platform and Sina’s microblogging platform Weibo.  Cloud computing currently accounts for only around

5% of software & IT services spending, but its share is expected to expand in the proximate future.

Market Segmentation in 2012 (RMB mn)

Ministry of Industry and Information Technology, Vyom Tech 3.5 4.8 6.3 73.0% 36.0% 32.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 1 2 3 4 5 6 7 2012 2013 2014E

Public Cloud Computing Market Size, RMB bn Annual Growth

SaaS 2,800

IaaS 511

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IT Outsourcing

Market Size

 Boosted by strong government support, the segment has been one of the fastest growing ones over the last five years.

 The country is aiming at taking over India’s global leading position. However, factors such as China’s problematic security and intellectual property protection, as well as the squeeze in the global outsourcing market brought about by the slowdown of leading economies have so far hampered the country’s ambitions.

 Exports of outsourced IT services grew up by 54% in 2012, with their contribution to overall export growth in the subsector reaching as much as 60%. That is comparable to a growth rate of 40.3% in 2011.  According to a survey of Duke and Jiaotong

universities, small companies of up to 500

employees account for 87% of the market, and most outsourcing service providers (79%) have been in business for less than 10 years.

 The strength of the RMB on the foreign exchange markets remains unfavourable for companies in the sector.

IT Outsourcing China, CIO

5.1 6.2 7.6 8.9 11.4 13.8 0 2 4 6 8 10 12 14 2012 2013 2014 2015 2016 2017

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Comments

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IT Security

IT security largely outperformed the other segments in the industry in 2012. However, the amount of spending in the segment was as low as about 1%.

As demand for IT security products is massively bolstered by the spread of social networking which exposes consumers to a number of risks, the prospects for the future growth of the segment are solid.

Market Size Product Segmentation, 2012

IT Outsourcing China 12.9% 12.7% 12.5% 12.6% 11.9% 11.3% 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2011 2012 2013 2014 2015 2016 2017

Market Size, RMB mn Annual Growth

IT Security Software 24.3% IT Security Services 24.5% IT Security Appliances 51.3%

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Highlights

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Great Wall Technology Company Limited

Financial Performance

Other Financial Data

 Great Wall Technology Co., Ltd. (GWT) was established in Shenzhen in on 20 March 1998. The company was listed on the Hong Kong Stock Exchange on 5 August 1999.

 The company’s business scope covers the research and development, manufacture and sale of personal computers, information terminal products, as well as storage products, power supply products, monitoring terminals, LCD TV products and EMS business.  The decline in 2012 net profit was attributed chiefly to

the impacts of the European sovereign debt crisis, the drop in global market demand and consumers’ willingness to purchase, the lower prices of certain products, the rising labour costs, currency exchange rate fluctuations and the provisions made by one of its subsidiaries.

 China Electronics Corporation (CEC) controls 62.11% in GWT.

Company data, Reuters

2008 2009 2010 2011 2012

Total operating expenses,

RMB mn 816 1,735 4,401 5,221 7,675

Cost of revenue, RMB mn 21,482 35,151 99,765 89,825 89,529 Total assets, RMB mn 10,336 36,415 42,278 45,411 52,678 Total liabilities, RMB mn 3,885 22,625 26,402 29,990 37,301 Total stockholders' equity,

RMB mn 6,451 13,790 15,877 15,421 15,377 Earnings per share 0.3 0.33 0.54 0.13 -0.14

22,528

37,085

104,932 95,024 95,884

1,046 624 1,934 1,007 5,167 1,740 5,199 748 6,355 127

2008 2009 2010 2011 2012

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Great Wall Technology Company Limited (cont’d)

Expenses, RMB mn Revenues Distribution, 2012

Company data 2,224.0 3,383.0 2,119.0 2,397.0 878.0 1,894.0 155.0 493.0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2011 2012 Finance costs Research and development expenses Administrativ e expenses Selling and distribution costs TVs 25.3% Monitors 42.6% Electronic parts & components 20.3% Computers 3.2% Property investment 0.2% Others 8.4%

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Highlights

Source:

Digital China

 Digital China is the largest integrated IT services provider in China. The company has been listed on Hong Kong Stock Exchange in 2001 after a spin-off from Legend Group in 2000.

 The company is primarily engaged in the sale and distribution of general information technology and systems products, as well as provision of supply chain services and IT services.

 The company was ranked 83rd_{in Forbes Top-500} Chinese Companies for 2013, moving two places up compared to 2012.

 In October 2013, Digital China launched the country’s first city public information service platform, which was essentially the first core support system for Smart City construction.

 The company is concentrating its strategic efforts towards segments such as cloud computing, mobile internet and internet of things.

 Digital China’s reputation suffered a blow in February 2013 when the Ministry of Finance imposed a fine on the company because of falsified materials it

submitted when applying to participate in a government smart city equipment tender.

Company data

42,326 50,178

56,804

70,319 73,499

2,959 ₆₀₉ 3,300 ₈₇₄ 3,912 _1,056 5,306 _1,339 5,371 _1,519

FY2009 FY2010 FY2011 FY2012 FY2013

Revenues, RMB mn Gross Profit, RMB mn Net Income, RMB mn

FY2009 FY2010 FY2011 FY2012 FY2013

RMB mn 2,523 2,755 3,097 4,116 4,079

RMB mn 3,140 4,673 6,571 7,523 8,671

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Source:

Digital China (cont’d)

Revenues by Segment (in HKD mn) Expenses (in HKD mn)

Company data 37,657.0 38,032.0 25,618.0 _23,248.0 1,211.0 1,147.0 9,013.0 7,892.0 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 FY2012 FY2013 Services Supply Chain Services Systems Distribution 382.5 _335.6 253.9 307.2 2,124.6 _2,017.4 1,354.9 1,419.0 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 FY2012 FY2013 Others Staff Costs Promotion and advertising expenses Sales Expenses

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Source:

TPV Technology Limited

 TPV Technology Limited is the world’s largest PC monitor and fourth largest LCD TV manufacturer. The company is based in Hong Kong and was listed in Hong Kong and Singapore in October 1999.  Since 2005, TPV Technology is the owner of part of

Philips' monitor and entry-level flat screen TV business. TPV Technology also distributes its products globally under AOC and Envision brands.  The company is expanding its business into

emerging markets. In 2013, TPV turned its India operations into a wholly owned subsidiary, TPV Technology India Pvt Ltd, investing some INR 200mn in Indian operations. Meanwhile, the company reported solid growth of its business in Eastern and Central Europe, Argentina and Brazil, and especially in Russia and Turkey, where revenues have more than doubled in 2012.

 In 2013, the company has suffered some decline related to the slowdown of economic growth in most emerging markets and the steep depreciation of their currencies against the US Dollar.

Company data

2008 2009 2010 2011 2012

Total operating expenses, USD

mn 348 350 507 648 986

Cost of revenue, USD mn 8,819 7,562 11,007 10,382 11,076 Total assets, USD mn 3,354 4,155 5,127 5,257 6,449 Total liabilities, USD mn 1,977 2,647 3,331 3,429 4,549 Total stockholders' equity, USD

mn 1,376 1,508 1,796 1,827 1,899

Earnings per share 0.05 0.07 0.07 0.05 0.05 9,247

8,032

11,632 _11,040 11,975

428 ₉₈ 470 ₁₄₂ 624 ₁₅₉ 658 ₁₁₁ 899 ₈₃

2008 2009 2010 2011 2012

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Source:

TPV Technology Limited (cont’d)

Shipments by Product, in units mn (2012)

Regional Distribution (2012) Expenses, in USD mn Company data 12.7 14.2 59.1 56.2 1.3 _1.7 0 10 20 30 40 50 60 70 80 2011 2012 AIO Monitors LCD Europe 30.1% PR China 28.6% North America 16.4% South America 11.9% Rest of the World 13.0% 308.5 496.1 214.9 206.9 124.5 283.6 12.1 62.0 0 200 400 600 800 1,000 1,200 2011 2012 Finance costs Research and development expenses Administrative expenses Selling and distribution costs

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Highlights

Source:

Neusoft Corporation

 Neusoft Corporation is a leading provider of software engineering services, IT services, product engineering services, IT education and medical equipment in China.

 The company was founded in 1991 and is based in Shenyang, Liaoning province. Currently, Neusoft has set up six software bases, eight regional headquarters and a marketing & service network in over 40 cities across China, with subsidiary companies in North America, Asia, Europe and the Middle East. The company has over 20,000 employees.

 In 2013, Neusoft signed a business contract with a Dalian-based subway company to undertake a contract project for communication systems in two subway lines in Dalian for RMB 530mn. The project is to be completed before June 30, 2014.

 In another major deal, in October 2012, Neusoft signed a joint contract with Shanghai Huahongjt Smart System Co Ltd to supply automated fare collection (AFC) system integration for a Dalian city project for RMB 108mn.

 Neusoft Medical Systems, a subsidiary of Neusoft Corporation, increased its stake in a in a joint venture with Dutch Royal Philips Electronics from 49% to 74%.

Company data, Reuters 3,711 4,166 4,938 5,751 6,960 1,356 1,454 1,554 1,746 2,230 491 641 485 417 456 2008 2009 2010 2011 2012

Revenues, RMB mn Gross Profit, RMB mn Net Income, RMB mn

2008 2009 2010 2011 2012

RMB mn 809 837 1,105 1,342 1,700

RMB mn 3,407 3,998 4,280 4,675 5,119

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Source:

Neusoft Corporation (cont’d)

Revenues (RMB mn) Expenses (RMB mn) Company data 497.9 635.1 820.0 985.9 23.6 78.6 323.5 468.5 0 500 1,000 1,500 2,000 2,500 2011 2012 R&D Expenses Finance Costs Administrative Expenses Sales Expenses 4,830.5 5,975.0 803.4 893.6 117.3 91.5 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 2011 2012 Others Medical Systems Software & System Integration

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Highlights

Source:

Inspur Group Co., Ltd.

Inspur International Ltd. Financial Performance

Inspur International Ltd. Other Financial Data

 Inspur Group Co. Ltd., formerly known as Langchao, is a leading Chinese IT company, based in Jinan, Shandong province. Inspur is one of the oldest IT brands in China.

 Inspur Group has three listed subsidiaries, Inspur Information, Inspur Software and Inspur Intl.  The company’s business covers the three major

industrial groups of system and technology, software and services and semiconductors, and provides IT products and services for more than thirty countries and regions.

 Inspur Group’s strategy for 2013 included focusing on the development of businesses with technical

advantages, pursuing active market expansion strategies and consolidating its presence in current regions.

 Inspur has recently been aggressively expanding its business in Southeast Asia and has set up

representative offices in seven countries in the region. One of its major recent projects was supporting the construction of smart cities in Indonesia.

Company data 1,842 2,156 2,337 _2,222 2,401 514₃₃₄ 498 462 528 507 253 ₁₇₈ 48 -99 2008 2009 2010 2011 2012

Revenues, HKD mn Gross Profit, HKD mn Net Income, HKD mn

2008 2009 2010 2011 2012

HKD mn 213 274 351 549 668

Cost of revenue, HKD mn 1,327 1,657 1,875 1,693 1,894 Total assets, HKD mn 1,419 2,074 2,422 2,355 2,335 Total liabilities, HKD mn 619 634 735 516 630 Total stockholders' equity,

HKD mn 800 1,441 1,687 1,839 1,705

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Source:

Inspur Group Co., Ltd. (cont’d)

Inspur International Revenues (HKD mn) Inspur International Expenses (HKD mn)

Company data 963.4 1,239.5 675.8 481.0 457.9 492.2 124.5 188.5 0 500 1,000 1,500 2,000 2,500 3,000 2011 2012 Software Outsourcing Software Developmen t Sales of IT peripherals & Software Sales of IT components 276.0 313.4 241.7 275.9 15.0 6.1 0 100 200 300 400 500 600 700 2011 2012 Finance costs Selling and distribution cost Administrativ e and other operating expenses

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Source:

Appendix: Software Sector Regional Distribution

Software Sector Regional Distribution

Ministry of Industry and Information Technology

North China

Number of software enterprises (2012): 3749 (13.2% of total)

Software Industry Revenues (2012) 17.2% of total

Northeast China

East China

South Central China

Southwest China

Northwest China

Number of software enterprises (2012): 1416 (5% of total)

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Contact:

Corporate Headquarters

Nestor House Playhouse Yard London EC4V 5EX UK

Voice: +44 207 779 8471 Fax: +44 207 779 8224

Americas Headquarters

225 Park Avenue South New York, New York 10003 US

Voice: +1 212 610 2900 Fax: +1 212 610 2950

Asia Headquarters

Eucharistic Congress Bldg. No. III

4th Floor, 5 Convent Street Mumbai 400 001

India

Voice: +91 22 22881123 Fax: +91 22 22881137

Disclaimer:

The material is based on sources which we believe are reliable, but no warranty, either expressed or implied, is provided in relation to the accuracy or completeness of the information. The views expressed are our best judgment as of the date of issue and are subject to change without notice. EMIS and Euromoney Institutional Investor PLC take no responsibility for decisions made on the basis of these opinions.

About EMIS Insight

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IT & Software Sector China

IT & Software

Sector

China

Table of Contents

I. Sector Overview

II. Hardware

III.Software & IT Services

IV. Main Players

V. Regional Distribution

Sector Highlights

Sector Importance

Chinese IT Market

Investments

Retail

Industry Forecast

Government Policy

Subsector Highlights

Hardware Market Segmentation

Computer Industry

Computer Industry Employment & Output

Computer Penetration

Computer Prices

Computer External Peripheral Equipment Industry

Peripherals Industry Employment & Output

Industrial Production

Exports & Regional Position

Subsector Highlights

Subsector Highlights

Software Revenues

Software Market Segmentation

IT Services Market Size & Segmentation

Software & ITS Labour Market

Industry-oriented Software Market

Cloud Computing

IT Outsourcing

IT Security

Great Wall Technology Company Limited

Great Wall Technology Company Limited (cont’d)

Digital China

Digital China (cont’d)

TPV Technology Limited

TPV Technology Limited (cont’d)

Neusoft Corporation

Neusoft Corporation (cont’d)

Inspur Group Co., Ltd.

Inspur Group Co., Ltd. (cont’d)

Appendix: Software Sector Regional Distribution