July 2, 002

The following is the executive summary of an very detailed 61 page China market research, commissioned by Deutsche Messe AG, Hannover, in preparation for the
forthcoming CeBIT Asia 2002 in Shanghai, and targeted to individuals and companies evaluating the China market for supplying, establishing a business or
exhibiting at CeBIT Asia. The long form copy of this market research is available free of charge from the publishers of Taiwan Technology.

EXECUTIVE SUMMARY

China Market Report

China has the world's largest single market and is one of the most important economies in the world. Despite the Asian crisis, China still ranks top as recipient of foreign direct investment (FDI) . Its GDP has been growing steadily over the past years at rates between 7 and 8 percent. In the next two decades China's economy is expected to grow at an average annual growth rate of 6 percent, much faster than the world economy as a whole. China's realized foreign direct investment climbed to an all time high of US$46.8 billion in 2001, and FDI inflows might even double to US$100 million by 2005- More importantly, the portfolio of FDI increasingly includes technology-intensive industries like the IT&T sector.

China's WTO accession offers interesting opportunities for foreign suppliers of IT&T technology. Trade is liberalized as import tariffs on IT products such as computers, semiconductors and Internet-related equipment are reduced from an average of 13.3% to zero by 2005. The PRC will eliminate export subsidies, quotas and quantitative restrictions on imports within five years of joining the WTO- Furthermore, geographic restrictions in all kinds of telecommunications services will be gradually phased out. China will also steadily increase foreign ownership for all kinds of telecommunication services up to 49% in the next five years. Since the financial sector is also increasingly opened up and liberalized, demand for IT/T technology will be enhanced further.

Over the past two decades China has become one of the world's largest producer, exporter and consumer of electronics. More importantly, China has become the world's fastest growing information technology market and will remain the most dynamic market in the years to come. According to the International Data Corporation (IDC), China's IT sector will maintain a steady of at least 25% in 2002, whereas IT-spending will only increase between 4 to 6% in the U.S. and about 7% in Europe. IDC also predicts that China will become the main growth engine for the IT sector worldwide after joining the WTO last year. The country will be the third largest IT market by 2010, and might be the largest high-tech market in the world by 2015.

The development of China's IT market is determined by ambitious government plans and its funding for the sector, rising demand from the business sector and increasing consumer spending for IT technology. The government is strongly committed to push the expansion of China's IT sector, in terms of development and adoption of new technologies, and improvement of its IT products and services. In April 2001, the government announced to infuse US$500 billion into the information technology sector between 2001 and 2005. By then, the IT sector should contrbutge about 7% to the country's GDP, up from 4.5% in 2001.

China's PC market has witnessed a rapid expansion with annual C sales increasing from 1.2 million units in 1994 to approximately 8.1 million in 2001. Thereby, China has become the world's largest market in computer sales. Accordig to official estimates, China will be the second largest market for PCs by 2006. The PC market should expand by an annual growth rate of 18.8% over the next five years, thereby increasing the sales value from US$ 6.3 billion in 2001 to US$ 12.6 billion in 2006.

Although piracy is still a major problem, the Chinese software market has increased rapidly over the past years. Software sales account for about 10 to 12% of the IT sales andhave grown much faster than hardware sales.They increas by over 30%in the past two years. In 2000, software sales reached a value of US$ 2.8 billion, and for 2001 sales are expected to be as high as US$ 3.8 billion.

Internet usage has grown remarkably over the past years. By January 2002, China had about 33.7 million users. The Ministry of Information Industry expects 60million Internet users by the end of 2003. Between 1998 and 2002 the combined bandwidth to the international Internet backbone grew from 85 Mbps to 7,597 Mbps, and the number of websites jumped from 3,700 to 277,100. More importantly, the Chinese government considers the Internet as a key part of its economic development plans and is pushing the development of Internet infrastructure.

China's government and the commercial sector take great interest in promoting E-commerce throughout the country. According to IDC, China's total value of E-commerce transactions amounted to US$42 million in 1999 and will approximately be 10 times higher in 2002 (US4 billion). According to official estimates, China's online business to consumer market was expected to reach US$190 million in 2001 and might increase to US$3.2 billion by 2004.

China's telecommunications sector has been and will continue to be, at least for the first decade in the 21st century, one of the most dynamic markets in the world. In 2000, the telecom sector generated revenue of US$37 billion, which makes for a year-on-year increase of 26,4%, more than three times the GDP growth rate. For 2005, China's telecom revenue is expected to hit US$116 billion, about three times the current value.

The number of telephone subscribers has increased rapidly over the past years from roughly 100 million in 1998 to around 340 million by February 2002. China's telecom sector has made much more progress than anticipated, since the MII previously had set the total number of subscribers at 370 million bz 2010. MII had also announced that it expected telecom subscribers to reach even 1 billion by 220.

Mobile telephony is by far the most profitable telecommunications subsector in China, generating over 46% of the total telecommunications revenue. Subscriptions of mobile telephones jumped from 3.5 million in 1995 to about 156 million in March 2000, making China the largest market for mobile communications in the world. Previous official estimates, which have put mobile subscriptions in the range of 170 to 200 million by 2010, might already come true within this year. According to the current 10th Five-Year Plan (2001-2005), China should have about 260 million mobile phone subscribers by the end of 2005. Considering the fast pace of development and the still huge demand for mobile communications the mobile phone market provides vast opportunities for foreign equipment providers.

Demand for imported telecommunications equipment, accessories and parts has increased from roughly US$ 5.4 billion in 1996 to US$ 12.3 billion in 2000. On a five year average between 1996 ands 2000, electrical apparatus for line telephony accounted for 14% while transmission apparatus for telegraphy and radiotelephony made up 19%. Microphones, headsets, loudspeakers as will as other telecommunications equipment accounted for roughly 2% each, while parts and accessories for use with telecommunications equipment made up the bulk of imports by accounting for 63% of the total value spent.

China has a strong demand for all equipment associated with computer networking, particularly network switches, and equipment associated with accessing the Internet. This accounts especially for high-end products and state-of-the art networking products, which have to be imported.

Being a major center of commerce and industry, and having ambitious development plans for E-commerce, IT and telecommunications, Shanghai is an excellent location for an exhibition of information technology (IT), office automation and telecommunications. Shanghai is China's leading city for local networking and E-commerce and is determined to catch up with Beijing and Shenzen in IT and telecommunications. Furthermore, Shanghai is developing its own "Silicone Valley" to support the local software and IT industry and has also become a major national center for China's IT&T industry.

- ends -

For a full copy of the China Market Report, either in print form or by eMail, please write to the editor at Service@Taiwan-Technology.com