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China’s Policy on the Development of Information Industry: Retrospect and Problems Chen Xiaohong, Ma Jun & Yuan Dongming

2004-09-11

Research Report No 060, 2004

I. Background: the Status and Status Quo of the Information Industry

1. China’s information industry is a pillar and basic industry of the national economy.

China’s information industry[1] has witnessed a rapid growth, which has become a key factor behind the development of the national economy, thus growing into a pillar and basic industry of the national economy. The information industry has maintained a rapid growth over the past dozens of years, more than double the growth of the GDP, increasing to 573 billion yuan in 2002 and accounting for more than 5% of the GDP. The electronics information products manufacturing industry is the fastest growing industry in China in the past dozens of years, which has captured the largest share of exports in mechanical and electrical products. The communication operation industry including telecommunications and TV has also reported a rapid growth, which provided a vital basic service for the development of China’s national economy. The fast growing information industry and the extensive application of the information technology (IT) have boosted the development of the national economy and social undertakings.

The development and level of the information industry constituted the basis for national and social security. With the advent of an information society, information security has become a key link in the chain of national and social security. A strong information industry is the basis for the information security of the state and society, which is also the basis of modern national defense.

China has explicitly vowed to take the "road of a new type of industrialization" and "insisted on realizing industrialization with informatization and promoting informatization with industrialization". It is clearly proposed that the information industry is one that is given top priority in its development in China.

2. The status quo and environment characteristics of the information industry in China

A comparatively sound foundation has been laid for the information industry. China’s information industry boasts a huge scale, edging into the world advanced level. In 2002, the industrial output value of the electronics information products manufacturing industry amounted to nearly 1.8 trillion yuan, next to Japan which held the world second place. The number of telecommunications network users in China totaled 421 million (with 214 million fixed-phone users and 207 million cell-phone users), ranking first in the world. An integrated system has emerged in China’s information industry, ranging from spare parts to whole sets and from manufacturing to service, except for some high-end products and services. The processing manufacturing industry has remarkable competitive advantages. China is growing into a global electronics information processing and manufacturing base. The output volume of some of its key electronics information products has become the world leader. The industrial globalization, including the trade and investment globalization, has become a strong driving force of the processing and manufacturing industry. Many international giants in electronics information have made huge investment in China, and domestically a number of indigenous enterprises and name brands with considerable competitiveness have emerged. They are Haier, Changhong and TCL in the consumer electronics sector, Huawei and Zhongxing in the communication sector, Lenovo Group in the computer sector and the four giants in the communication operation industry, all of which are enterprises and name brands that have caught the world attention.

China’s information industry started in an increasingly marketized and open circumstance. The market of the electronics information products manufacturing industry has been basically opened, and the telecommunication operation industry has been opened in more fields on the basis of market reforms and the deepening of supervision and management reform. After its accession to the WTO, China will readjust its policy and further open its market, which will lead to major changes in the policy environment of enterprises.

II. The Basic Contents and Results of the Policy toward the Development of China’s Information Industry

1. Two kinds of policies affecting the development of China’s information industry: description and assessment of roles

The development of China’s information industry is a result of the continued growth of the Chinese economy, the expanding market demands and the efforts by enterprises themselves, which is also closely linked with the policy of the Chinese government.

There are two categories of policies that will affect the development of China’s information industry. The first is China’s policy on development, reform and opening up, i.e., the policy affecting the mechanism and environment of the development of the information industry and enterprises. The core of the policy is to turn market and competition into the mechanism and source of development, the reform of state-owned enterprises, the support for and the allowing of the development of enterprises from different sectors of the economy, and opening up to the outside world. The opening up to the outside world was carried out in different stages. In the 80s of the 20th century, it was encouraged to introduce technology and capital, but a relatively strict control was imposed on imports and foreign capital. Since the 1990s, restrictions on trade items have been eased and the introduction of foreign funds was further encouraged, but the capital account was still put under comparatively tight control (For example, foreign businessmen were not allowed to engage in the domestic distribution business). To develop the domestic capital market and allow Chinese enterprises to raise funds overseas have created an important condition for the growth of many excellent enterprises.

The second is the policy that has directly boosted the growth of the information industry. The emphasis of the development and reform policy of the telecommunication industry in the 1980s was to introduce the mode of enterprise to telecommunication operation institutions, the expansion in scale and new business items. In the 1990s, the policy was to break monopoly, develop the Internet and promote telecommunications interconnection and to gradually relax the access barriers of "ownership restrictions" and "department restrictions". The policy emphasis of the information products manufacturing and service industries in the 1980s was to develop short line products with weak competitiveness, increase supply and introduce foreign capital and competition mechanisms in selected areas. Since the 1990s, the overall development of the information industry has been accelerated with the steady progress of informatization of the national economy, and the introduction of foreign capital has been further accelerated. Up to now since the end of the 1990s, the policies on telecommunication products, software and integrated circuit that have been released one after another were aimed at directly pushing forward the development of information products and services by granting special support for selected projects, tax preferentials and technical standards.

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[1] The information industry mentioned in this report refers to the electronics information industry (including electronics manufacturing industry, software and service industries) and telecommunication service industry).