Some argue the high-tech opportunity in China exists largely because of a confluence of historical circumstances.
During the Cultural Revolution of 1966-76, "there was no law", says Cedric Chao, partner with Morrison & Foerster, an international law firm based in San Francisco. However, the 1979 ascendance of , Deng Xiaoping set the country on a course of economic reform and stability.
While political reform until recently has been fairly slow, the country's economy adapted rapidly to market forces.
Today "99 percent of consumer prices are dictated by supply and demand", says Lawrence J. Lau, professor of economic development at Stanford University. The government owns 70 percent of the stock on the Chinese exchanges, he added, but private enterprise is responsible for 65 percent of the gross domestic product.
Nonetheless Gartner's Hayward points out Chinese markets remain strictly regulated when compared to other markets.
"In order to sell any of this software you often have to get government approval, and it is enormously difficult as a foreign company to achieve it," Hayward says, conceding past experience has made him fairly cynical as to the Chinese government's willingness to open the country's massive markets to foreign competition. "The government is not in the business of making foreign companies profitable in China, if they realise an industry is doing well they change the laws so as to ensure a profits do not go offshore."
The economy has grown by 10.9 percent a year since 1979 and will continue to expand by 7 percent annually for the next several decades regardless of economic conditions outside the country, according to studies by Lau. With US$450 billion invested in it each year, China will surpass Japan as the world's second-largest economy by 2020, he predicts, and its GDP will equal that of the United States by 2035.
Anticipating this growth, the government has funded research and adjusted its laws to provide a fertile environment for intellectual property. Legend, Linux developer Red Flag Software and other companies were created through funding, research, and often personnel from the state-run Chinese Academy of Sciences, which recently developed a prototype of a 150MHz processor compatible with Windows.
Hundreds of universities with strong tech departments have been created. The Chinese public has responded in kind.
Fuelled by what Hayward describes as a price based market entry strategies and fearsome competition, China has become the largest consumer of cell phones in the world, with 167 million customers and another 4 million to 6 million new subscribers each month.
However, this early success is mitigated by low average revenue per unit when compared to other markets, and a prevalence of prepaid, rather than the more lucrative plan-based payment systems.
"Foreign operators have to come to terms with the fact that China is an extremely price sensitive market," Hayward says.
The demand for personal computers has slipped since 2000, when consumer shipments grew 82 percent, but it is still relatively strong.
PC shipments are expected to grow 18 percent annually on average through 2006, according to market researcher IDC. Server revenue will grow 12.7 percent annually through 2006.
This is good news for countries which are active within the hardware market, however, the news is not so good for service-focussed markets such as Australia.
"Services companies don't exist in China, if you buy a server from IBM, IBM comes in and installs it themselves," Hayward says. "Many of the things Australia is good at are not in high demand."
Nonetheless Hayward signals opportunities for niche software developers in vertical markets such as mining and utilities.
"If a company manages to make the connections and get involved with a big project it should do very well," Hayward says.
