China’s Information Technology Policy

Policy Brief
by Ling Zhu
College of Management, Long Island University C.W. Post Campus

China is a government policy-oriented economy. Four years after the establishment of the People’s Republic of China, the Chinese government adopted the "Five-year Plan" strategy in 1953 for its economic and social development. The "Five-year Plans", currently at its eleventh, detailed economic development guidelines for the entire country, setting growth targets, mapping directions of future development, arranging national resources for key projects, and managing the distribution of industrial sectors in the national economy.

Recognizing information technology (IT) as the major driving force of economic and social development, the Chinese government has taken a proactive strategy for IT policy. The development of IT has been well incorporated in China’s Five-year Plans and other governmental initiatives. IT policy plays a greater role in national politics in China than in many other countries. Many Chinese government leaders and scholars believe that good government policies and intervention measures could provide the necessary political, social, physical and financial infrastructure for the development of IT in China. Meanwhile, because of the strategic significance of IT in improving China’s competitiveness, Chinese policy-makers also believe it is important for the government to play the leadership role in and take the control of the development of IT.

For the past decade, the development of IT in China has been impressive, although in terms of GDP per capita China is still a developing country. The IT industry has become the No.1 pillar industry in China’s economy. Surpassing Japan and the Europe Union in 2003 and then taking the lead from the U.S. in 2004, China has became the world’s largest exporter of IT goods such as mobile phones, laptop computers and digital cameras, according to OECD (Organization for Economic Cooperation and Development) data. In 2005, China produced 303 million mobile phones and 81 million computers, taking the first and second places as the world’s largest mobile phone and PC markets, respectively. It also became the world’s third largest producer of semiconductors. China has established itself as one of the most important locations for global IT production and as the world’s largest potential IT market.

On the other hand, however, China has not reaped the full benefit of its large-scale IT output. The actual IT adoption and usage within Chinese businesses and the integration of IT in value chains and business processes are still lagging behind. In general, IT spending was lower in China (4.5 percent of GDP in 2005) than in leading OECD countries (9 percent of GDP). The Chinese government and IT industry also face persistent critics of intellectual property infringement and export dumping from the international community. Moreover, the IT industry in China experiences more and more competition from other emerging and developing economies and is under pressure to upgrade its position in the global production chain from low-cost manufacturer to high value-added products provider.

Contents

1. Historical evolvement of IT policy-making and regulatory institutions
   
   1. 1980s: The beginning stage of IT development
      
   2. 1993-1998: The fragmented and frequently changed institutions
      
   3. 1998-2008: The MII era
      
   4. 2008-present: The MIIT
      
2. The development of China’s IT policies
   
   1. List of current laws, regulations and administrative rules related to IT
      
3. Current status of IT development in China
   
   1. Comparison of R&D expenditure between China and other major countries (2007)
      
   2. Rankings of S&T infrastructure of China and other countries (2007)
      
   3. China’s IT-related rankings in the Global Information Technology Report (2007-2008)
      
   4. China’s positions in the EIU E-readiness Rankings 2008, compared with the U.S., Hong Kong, Singapore, South Korea, Japan, Taiwan, Mexico, Brazil, India, Russia and Vietnam
      
   5. The 22nd Survey Report on the Internet Development in China (July 2008)
      
   6. China’s Top 20 IT Companies in 2007
      
4. The major problem of IT industry in China
   
5. The U.S. perspective of China’s IT policy
   
6. China’s IT policy for the future
   
   1. The Eleventh Five-year Planning on Information Industry (2006-2010)
      
   2. The State Informatization Development Strategy (2006-2020)
      
7. References and further readings

Historical evolvement of IT policy-making and regulatory institutions

The State Council of the People’s Republic of China, namely the Central People’s Government, is the highest executive body and chief administrative authority in China. The State Council and ministries and commissions under the State Council supervise, direct and/or regulate all the significant economic and social sectors at the national level. They are also responsible for formulating most national policies, strategies and initiatives and issuing administrative measures, decisions and mandates. Although China’s "Five-year Plans" for national economic and social development were "officially" developed and proposed by the Communist Party of China (CPC) Central Committee and approved by the National People’s Congress (NPC), the State Council and its ministries and commissions have virtually prepared, shaped and implemented the Five-year Plans.

The structure of the State Council has been reorganized six times since 1982. The IT policy-making and regulatory institutions under the State Council has therefore evolved.

1980s: The beginning stage of IT development

During 1980s, China did not have a standing government agency responsible specifically for IT development. However, upon adopting a national strategy of developing an IT industry, the State Council created several leading groups, aiming to coordinate various government agencies, to set the development plans and policies for IT, and to guide China’s emergence into the information age.

• In 1982, the State Council created the Leading Group for Computer and Large Scale Integrated Circuit to promote the development of computer hardware, software and IC industries.
  
• In 1984, the State Council set up the Strategic Group for New Technological Revolution to respond the global trend of information revolution.
  
• In September 1984, the State Council restructured the Leading Group for Computer and Large Scale Integrated Circuit into the Leading Group for Electronic Revitalization. Both the former President Jiang Zeming and former Premier Li Peng were members of the new leading group.
  
• In November 1984, under the approval of the State Council, the Leading Group for Electronic Revitalization issued China’s "National Development Strategies for Electronics and Information Technology".
  
• In 1988, the standing committee meeting of the State Council decided to rename the Leading Group for Electronic Revitalization to the Office for Promotion and Application of Electronic Information Systems.

After the organizational reform of the State Council in 1988, the newly-created Ministry of Mechanic and Electronic Industries, the State Science and Technology Commission (SSTC), and the Chinese Academy of Sciences (CAS), an institute directly under the State Council, heavily involved in research, development, production, promotion and application of IT such as computer, integrated circuit, telecommunication, software, EDI, MIS, and CAD/CAM. Legend Group Ltd. (the predecessor of the Lenovo Group Ltd., the world’s fourth largest PC manufacturer) was founded in China in 1984, with seed funding of approximately $25,000 from the Chinese Academy of Sciences (CAS).

In addition, the State Council created the National Natural Science Foundation of China (NSFC) in 1986 to manage the state research funding, as it is for the full spectrum of university- and CAS institute-based science and engineering disciplines. The Department of Information Science under the NSFC is responsible for accepting, reviewing and granting research funding in the particular area of information technology. The programs given priority for support by the Department include high-speed network, information security, high-performance computing (network computing and parallel computing), software development, virtual network, network multimedia, etc.

1993-1998: The fragmented and frequently changed institutions

1993 was a milestone year for China’s IT development. In that year, major members of China’s highest leadership, including former President Jiang Zeming and former Premier Zhu Rongji, commonly agreed to initiate the task of "informatization construction" nation-wide. Accordingly, the State Council proposed several e-government projects, under a common name of the Golden Projects. A number of government agencies led or were actively involved in the Projects. Those ministries included the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), the Ministry of Posts and Telecommunications (MPT), the Ministry of Electronic Industry (MEI), and the People’s Bank of China (China’s central bank). Among them, MPT played double roles, both as regulator and a monopoly carrier/operator of the telecommunication industry, including Internet services. MEI was the policy maker for the manufacturing of electronic and IT products. MOFTEC led the Golden Custom Project, an important component of the Golden Projects, a project linking customs points through a national EDI (electronic data interchange) system and promoting paper-less trade.

In December 1993, the State Joint Meeting on Economic Informatization was formed to respond to the rapid growth of the IT industry. The Joint Meeting was chaired by the then Vice Premier Zou Jiahua. The Joint Meeting served as the leading group at national level for the development of IT. It established such national guidelines as promoting informatization projects and driving industrial development through informatization. In May 1994, a State Expert Group for Informatization was also created to provide professional consultation for the Joint Meeting.

In 1996, the State Council replaced the Joint Meeting with a more formal State Leading Group for Informatization Task, still led by the Vice Premier and consisting of heads of more than 20 ministries and commissions, including MPT, MEI, MOFTEC and CAS. This leading group was the top decision-maker of China’s IT policy and coordinated the informatization task at the national level. In April 1997, the leading group convened the National Working Conference on Informatization for the first time, adopting China’s Ninth Five-year Planning on Informatization and the Long-term Goal for 2010.

1998-2008: The MII era

Fragmented IT policy-making mechanisms existed in various ministries and commissions until 1998. During the fourth organizational reform of the State Council in 1998, a concerted effort was made to build a super ministry—the Ministry of Information Industry (MII)—to coordinate the policy and regulations for the IT industry. The paradigm had shifted from more than a decade of fragmented and frequently changed regulators to a coherent regulatory regime.

According to the Decision of the Institutional Reform of the State Council approved by the Ninth National People’s Congress, the Ministry of Posts and Telecommunications (MPT) and the Ministry of Electronic Industry (MEI) were abolished and their functions were restructured into the MII. Integrating all power and authority related to the original major functions of MPT and MEI, the newly formed MII was responsible for regulation and development of the production of electronic and information goods, telecommunication sector (including the Internet, wireless and broadcasting services), software industry and the promotion of the national information economy. In addition, the State Leading Group for Informatization Task and its corresponding administrative function was merged into MII and a State Council Informatization Office (SCITO) was created as a department under MII. The function of regulating and managing the telecommunication service charge within the former State Planning Commission was transferred to MII as well.

Specifically, the major responsibility of MII included:

1. To study and formulate the government’s development strategies, guidelines, policies and overall plans of the information industry with a view to invigorating the manufacturing industry of electronic and IT products, the telecommunication industry and the software industry, as well as promoting the informatization process of the national economy and the social service.
2. To stipulate laws and regulations of the manufacturing industry of electronic and IT products, the telecommunication industry and the software industry, issue administrative rules, and be responsible for the administrative enforcement of laws and the supervision of the enforcement of laws.
3. To make overall plans for the development of national public communications networks (including local and long distance telecommunications networks) and dedicated networks of other sectors and exercise sector management.
4. To establish technical policies, systems and standards for the manufacturing industry of electronic and IT products, the telecommunication industry and the software industry; to exercise control over the network access verification of telecommunications network equipment and the network access of telecommunications terminal equipment; and to provide guidance to quality supervision and control of electronic and IT products.
5. To be responsible for nationwide distribution and management of such public telecommunication resources as radio frequencies, satellite orbit positions, communication network numbers, domain names and addresses.
6. To exercise supervision and control over the telecommunication and information service market, implement licensing for operation as necessary, exercise supervision over service quality, ensure fair competition and universal service and safeguard the interest of both the state and users; and to establish arrangements for network interconnection, interoperation and accounting, and supervise their implementation.
7. To formulate tariff policies for telecommunication and information service, set tariff standards for basic postal and telecommunications services and supervise their implementation.
8. To organize the planning, construction and management of dedicated government telecommunication networks; to manage the supervision and dispatch center of the national telecommunication networks and international telecommunication gateways; to deploy and coordinate dedicated government telecommunications, emergency and disaster relief related communications and mission-critical communications; and to ensure security for communications of the government.
9. To provide guidance and foster the growth of the IT industry in compliance with the industrial and technological development policies, by giving directions to the adjustment of its industrial structure, product mix and enterprise structure, as well as the reorganization of state-owned enterprises and the establishment of enterprise groups; and to rationally allocate resources and prevent duplicated construction.
10. To facilitate R&D in the manufacturing industry of electronic and IT products, the telecommunication industry and the software industry, organize projects to tackle major technical problems and promote the digestion, absorption and improvement of the imported technologies with a view to applying R&D results to production; and to offer support to national industries.
11. To study and formulate development plans for the informationizaiton of the national economy and help project owners and initiators in promoting the key informatization projects; to direct, coordinate and organize the development and utilization of information resources; and to give guidance to the popularization of electronic and information technologies and education on informatization.
12. To organize and give guidance to the consolidation of financial data, the submission of profits, the allocation of funds and clearing of postal and telecommunications enterprises, coordinate operational relations between postal enterprises and telecommunications enterprises, and mobilize funds for subsidies for universal service and for posts.
13. To represent China in relevant international organizations and when signing inter-governmental agreements, organize foreign economic and technical cooperation and exchanges, and handle matters concerned with other countries.
14. To study communications and information policies concerning the Hong Kong Special Administrative Region (SAR), Macao (SAR) and Taiwan and deal with related issues.
15. To be responsible for the publication of sector statistics and information.

Despite the centralized role of MII in China’s IT policy, there were still other government agencies which framed and affected several significant aspects of IT policy. For example, MOFTEC and its successor since 2003, the Ministry of Commerce (MOFCOM), through the Department of IT under the ministries, had played a crucial role in shaping e-commerce policy and promoting e-commerce/e-business in China. In 2000, MOFTEC initiated the "Enterprise Online Project", which had helped 19 percent of China’s small and medium size enterprises (SMEs) to adopt e-commerce by the end of 2002. Since 2004, MOFCOM began to publish China’s White Book on Electronic Commerce. In the White Book 2004-2005, MOFCOM indicated its policy efforts in five fields: 1) drafting and enforcing e-commerce related laws and regulations; 2) formatting policies and initiatives in public sectors; 3) improving IT infrastructure; 4) educating and training; and 5) supporting technology innovation.

The National Development and Reform Commission (NDRC), an important macroeconomic administrative and planning agency under the State Council, maintains a Department of High-Tech Industry. The department pays a lot of attention to the IT industry and is responsible for strategies, plans, policies, priorities areas and construction projects concerning the development of the IT industry.

China Internet Network Information Center (CNNIC) is the administrative agency responsible for Internet affairs, especially operating and administering China’s domain name registry and allocating IP addresses. Although it is "officially" under MII, CNNIC was established directly by the State Leading Group for Informatization Task in 1997 and administratively operated by CAS through the Computer Network Information Center (CNIC) of CAS. The director of CNNIC Steering Committee is the Vice President of CAS and the deputy director of CNNIC is the director of the Telecommunications Administration under MII.

Interestingly, after almost two years of the establishment of MII, the State Council re-established the State Leading Group for Informatization Task in December 1999, directed by the then Vice Premier Wu Bangguo and later by the former Premier Zhu Rongji and current Premier Wen Jiabao, subsequently. The leading group has convened annual meetings since 2001. The facts of re-establishment of the leading group and leadership directly under the chief officer of the State Council reflect the Chinese government’s high profile in and emphasis on IT development.

2008-present: The MIIT

In 2008, during the latest organizational reform of the State Council approved by the Eleventh National People’s Congress, MII is superseded by the Ministry of Industry and Information Technology (MIIT). In addition to taking up the dual role of MII as policymaker and regulator for the IT sector, the new super ministry is also responsible for general industry policy. It assumes: 1) the administrative functions of industries formerly within the National Development and Reform Commission (NDRC); 2) the functions of the former Commission of Science, Technology and Industry for National Defense (COSTIND), except the administrative function of nuclear energy; and 3) the functions of the former State Leading Group for Informatization Task.

The move to the new super ministry is expected to help smooth policies towards the IT and telecommunication sectors, which has long been undermined by bickering between rival bureaucracies. The move might also help the Chinese government promote the development of "dual use" of technologies with military and civil applications. According to the original re-organization proposal submitted to the National People’s Congress, MIIT will "promote autonomous innovation and the development of major technical equipment" while "protecting national information security."

Under MIIT, there are a number of departments with responsibility and/or function related to IT. These departments include the Departments of Policy and Regulation, Planning, Industrial Policy, Science and Technology, Electronic Information, Software and Service Industry, Telecommunications Development, Telecommunications Administration, Informatization Advancement, and Information Security Coordination.

The major functions and responsibilities of MIIT, specifically related to the IT sector, are as follows.

1. Drafting and implementing development plans for informatization, and promoting the integration of informatization and industrialization.
2. Formulating and implementing industrial plans and policies for the telecommunications industry, making policy proposals for optimizing the industrial composition and structure, drafting related laws and regulations, and drafting and implementing industrial technical standards.
3. Monitoring and analyzing operating trends in the telecommunications industry, collecting and releasing statistic data, coordinating to solve issues in the development of the industry, and making related policy proposals.
4. Making decisions on the direction and size of both domestic and foreign investments in the telecommunications industry and informatization.
5. Formatting and implementing plans, policies and standards related to the IT industry, guiding technology innovation and advancement in the industry, and pushing the development of the software industry, IT service industry and other new high-tech industries.
6. Furthering institutional reforms and management innovations in the telecommunications industry, and improving the overall quality and competitiveness of the industry.
7. Coordinating and planning on the advancement of informatization at the national level, formulating related policies, coordinating to solve the major problems in informatization, facilitating the integration of telecommunications, broadcasting and computer networks, and supervising and coordinating the development of e-government.
8. Coordinating and planning on the development and usage of public communications networks and the Internet, monitoring and administering the telecommunications market and information service market, jointly with other government agencies formulating and implementing the policy for telecommunications service charges, and being responsible for distributing and managing telecommunications resource and international coordination.
9. Being responsible for communication network security and related information security management, coordinating to safeguard national information security, supervising and monitoring the information system security and information infrastructure security in government agencies and key industries, and responding to the large events related to networks and information security.
10. Carrying on foreign cooperation and exchange in telecommunications industry and informatization, and representing the State in related international organizations.
    

The development of China’s IT policies

In the course of searching new avenues to sustain China’s economic growth, the Chinese government gradually recognized the potential impacts of IT on national economic and social development. Policy-makers and academics reached consensus that modernization of the information industry should be given priority as a strategic industry. In the past twenty-five years, the Chinese government has formulated a basic strategic vision for its IT policy: "driving industrialization through informatization, promoting informatization through industrialization."

In 1983, the State Council’s Leading Group for Computer and Large Scale Integrated Circuit convened the National Planning Conference on Computer and Large Scale IC. The conference determined several policies and measures such as introducing foreign advanced technology, enhancing self-development capability, emphasizing research and development of the microcomputer, facilitating the computer software industry, promoting the application of computers, developing modern information systems, and training more science and technology professionals in the field.

In 1984, in order to formulate China’s IT policies, the Strategic Group for New Technological Revolution under the State Council funded and administered the special research projects on computers and optical fiber communications. The studies concluded that the Western countries were under a transformation from the "post-industrial society" into the "information society". This trend not only imposed a challenge but also provided an opportunity to China. China should focus on the development of modern information systems and wide application of computers and information technologies, especially the application in traditional manufacturing and service industries. The studies further suggested that, among newly emerging industry clusters, IT was the most important, flourishing and profound industry. The electronic and information industries should have priority in the nation’s economic development.

In November 1984, the Leading Group for Electronic Revitalization under the State Council released the National Development Strategies for China’s Electronics and IT Industries. The Strategies indicated that:

1. The top priority for the development of electronics and IT industries should be the application of the technologies in every sector of the nation’s economy.
   
2. The development of electronics and IT industries should be based on the micro-electronic technologies, and focus on computer and communication technologies. The key developing areas should be integrated circuits, computer hardware and software, and telecommunications.

According to the Strategies, during the period of the Seventh Five-year Plan (1986-1990), the Leading Group for Electronic Revitalization funded and administered twelve national IT application projects as follows:

1. Post and telecommunication system;
   
2. National economic information system;
   
3. Banking services management system;
   
4. Electricity grid monitoring system;
   
5. Beijing-Shanghai railroad operation system;
   
6. Weather forecasting system;
   
7. Scientific and technological information management system;
   
8. Customer service computer system in civil aviation;
   
9. Aerospace real-time tracking, command and data processing system;
   
10. Public security information system;
    
11. Fiscal and taxation system; and
    
12. Military command system.

In addition, in order to support the use of electronic and information technology in reconstructing the traditional industries, the Leading Group created the discount-interest loan program for the promotion and application of IT. The above governmental initiatives and support established extensive technical and social foundation for the IT development in China in the future. The proactive IT policies also helped provide human and financial resources for the sustainable development of IT in China.

March 1986 marked an important milestone in China’s science and technology development. In that month, under Deng Xiaoping’s leadership, China launched the National High-tech Research and Development Program, so-called the 863 Program. The program was intended to stimulate the development of advanced technologies for the purpose of rendering China independent of financial obligations for foreign technologies. The planned investment in the program was around $1.2 billion. Although IT was just one of nine fields in the program, funds related to information technology accounted for almost two thirds of total amount of investment. Specifically speaking, the IT-related field included four themes:

• Intelligent computer systems;
  
• Integrated technology of micro-electronic systems and optical electronic equipments;
  
• Information acquisition and processing technology; and
  
• Telecommunication technology.

Later in 1988 and again in 1998, IT was included as a key field in China’s another two important national S&T programs—the Torch Program (a governmental guiding program for industrializing high technologies) and 973 Program ("National Key Basic R&D Program"), respectively.

In 1993, the Chinese government started the Golden Projects, several e-government projects aimed at informatization of national economy. Three initial core projects included:

• The Golden Card Project, focused on building a national electronic money (credit card) network;
  
• The Golden Bridge Project, focused on building commercial Internet access networks; and
  
• The Golden Gate Project, focused on building national customs EDI systems.

In May 1996, the Central Committee of the Chinese Communist Party (CPC) and the State Council issued the "Decision on Accelerating Scientific and Technological Development". The Decision indicated that China should develop information networks and utilize information networks to boost the productivity of the manufacturing, service and other sectors. The government should give high priority to the support of hi-tech industry through tax, loan and procurement policies. China should try to approach or reach the level of the most advanced countries in the fields such as electronic communications.

Since 1996, both central and local governments in China have recognized the priority of informatization in national economic and social development. Informatization Offices have been created in both central and local governments. The State Leading Group for Informatization Task set up the national guidelines for informatization development:

• Informatization should be planned and led by the government;
  
• Standards in informatization should be unified;
  
• Informatization should be jointly developed by the public and private sectors; and
  
• National networks should be interconnected and resources should be shared among the networks.

After the Ministry of Information Industry (MII) was created in 1998, the super ministry had pushed forward the reform of telecommunication systems in China, increased market competition in telecommunication industry, and promoted e-government projects, enterprise online projects and electronic commerce projects.

In 2000, the Fifth Plenary Session of the Fifteenth CPC (Communist Party of China) Central Committee established the national strategy of "driving industrialization by informatization". In its Proposals for Working on the 10th Five-year Guidelines for National Economic and Social Development (the "10th Five-year Proposals"), the CPC Central Committee indicated that informatization was the trend of world economic and social development. Informatization was also the key link for China to optimize and upgrade its industrial sectors and achieve industrialization and modernization. Therefore, informatization in national economic and social development should be given priority. It was a strategic measure in China’s modernization. The government should use informatization to drive industrialization so that the country could achieve a leap-forward development.

When explaining the 10th Five-year Proposals, the then Premier Zhu Rongji stated that China should seize the opportunity of informatization to develop IT industry and use high and advanced technologies to transform tradition industries. Informatization could help China’s industries improve the overall quality and international competitiveness. Later in the formally adopted 10th Five-year Plan for National Economic and Social Development (2001-2005), "improving the national economy and social IT levels" became one of the basic tasks and key objectives of the country. During the 10th Five-year period, the Chinese government funded and administered 12 major R&D programs. Two of them involving IT were integrated circuits (ICs) and software. As a result, China has made some breakthroughs in chip design and system software.

Priorities for promoting informatization in China are:

• Informatization should be geared to the market and demand.
  
• The government should lead in informatization and support IT development.
  
• IT should be a driving force for industrialization and modernization. Information technology should be used to reform and upgrade traditional industries.
  
• The government should create a favorable environment for IT development. The government should foster competitive mechanisms in the market and enhance the planning and coordination in the government.
  
• During informatization, the government should pay attention to both foreign cooperation and independent scientific and technological R&D.

In 2002, the second annual meeting of the State Leading Group for Informatization Task passed "The Key Special Plan for Informatization during the 10th Five-year of National Economic and Social Development" and "The Guidelines on China’s E-government Programs". During the meeting, the then Premier Zhu Rongji pointed out that in order to advance informatization, China should take advantage of its intellectual resource, accelerate the development of its software industry, work on e-government projects, and promote informatization in more sectors.

In 2003, under the leadership of new Premier Wen Jiabao, the third annual meeting of the State Leading Group for Informatization Task set up five more guidelines for informatization:

• Informatization should be integrated with economic and social development.
  
• Informatization should help improve government administration.
  
• Economic and social informatization should be integrated with military informatization.
  
• Information security should be ensured during informatization.
  
• Governmental support should be integrated with market mechanisms in informatization.

In recent years, the Chinese government has set its sight on becoming a global player by moving from being a low-cost manufacturer to being a global provider of high value-added products, such as software, information security and IT services. With this in mind, the Chinese government has encouraged domestic firms to invest overseas, to seek mergers and acquisitions in the quest for new technology, expertise, brands, and distribution channels. The "go-out" strategy, as it is called, encourages Chinese companies to do so through relaxed controls on overseas investment by releasing sector restrictions, abolishing the foreign exchange self-sufficient requirements, and streamlining approval procedures. The strategy lay behind China’s TCL television business merger with France-based Thomson in 2004, Lenovo’s acquisition of IBM’s PC division in 2005, and Alibaba’s stake in Yahoo! China in return for Yahoo!’s purchase of about 46 percent of outstanding Alibaba stock in 2005.

R&D and "independent innovation" has been set as a priority. In its latest 11th Five-year Plan (2006-2010), the Chinese government announced its intent to foster domestic innovation in all high-tech sectors through greater investment and domestically-owned patents, and to reduce dependence on foreign technology and intellectual property rights. Some see this as the most significant change in China’s IT policy.

List of current laws, regulations and administrative rules related to IT

• Laws
  
  • Patent Law of the People’s Republic of China (passed in 1984, last amended in 2000)
    
  • Scientific and Technological Advancement Law of the People’s Republic of China (passed in 1993, amended in 2007)
    
  • Decision of the Standing Committee of National People’s Congress on Safeguarding Internet Security (passed in 2000)
    
  • Electronic Signature Law of the People’s Republic of China (passed in 2004)
• Regulations
  
  • Telecommunications Ordinance of the People’s Republic of China
    
  • China Internet Domain Name Regulations
    
  • Regulatory Provision of Foreign Investment in Telecommunications Industry
    
  • Regulatory Measure of Internet Information Service
    
  • Regulatory Ordinance on Business Location for Internet Access Service
    
  • Regulatory of Protection of Computer Software
    
  • Regulatory of Protection of Integrated Circuits Layout Designs
    
  • Interim Regulations on International Interconnecting of Computer Information Networks
• Administrative rules
  
  • Administrative Rule of Internet Audio and Video Programs and Services
    
  • Administrative Measure of Statistic Task in Electronic Information Industry
    
  • Administrative Measure of Control of Electronic Information Product Pollution
    
  • Administrative Measure of Internet Electronic Mail Services
    
  • Administrative Rule of Internet News Information Services
    
  • Service Standards of Telecommunication Services
    
  • Administrative Measure of Electronic Authentication Services
    
  • Administrative Measure of Internet IP Address on Record
    
  • Administrative Measure of Non-profit Internet Information Services
    
  • Administrative Rule of Constructing International Communication Facilities

The current status of IT development in China

During the 10th Five-year Plan period (2001-2005), the IT industry in China has experienced rapid and sustaining development. Its proportion in China’s economy increased substantially. In 2005, the gross revenue of the whole sector reached $628 billion, 4.6 times more than the figure five years ago. The IT sector accounted for 7.2 percent of the national GDP, up from 4 percent at the end of 2000. The IT sector also made up 16.6 percent of the country’s economic growth. Its growth was three times faster than the national GDP growth rate, and much faster than the ones of traditional manufacturing industries. IT product exports increased from $268 billion in 2001 to $550 billion in 2005, accounting for 35 percent of China’s overall exports and making China the largest IT exporter in the world. Sales and profits of the IT industry both excelled those of traditional industries, making the greatest contribution to China’s economic growth.

According to the 2005 China Science and Technology Statistics Data Book published by the Ministry of Science and Technology (MOST), R&D expenditures in 2004 were about $ 2.7 billion in the electronic and telecommunications equipments sector, and $ 0.6 billion in the computers and office equipments sector. According to the 2006 China Science and Technology Development Report published by MOST, R&D funding in 2005 increased to $6.5 billion in the electronic and telecom sector, and $1.6 billion in the computer sector. There were 3,807 patents in the electronic and telecom sector and 1,174 patents in the computer sector.

According to the Ministry of Industry and Information Technology, from January to April 2008, the sales income of the IT manufacturing industry was approximately $212 billion, up 2.8 percent from the same period of last year. The industry produced 198.1 million cell phones, 45.2 million desktop PCs, and 34.1 million laptop computers. There were totally 15,636 firms in the industry.

Meanwhile, during the first quarter of 2008, the sales income of the software industry was about $21 billion, up 30 percent from the same period of last year. Export value reached US$ 2.4 billion, with 54 percent increase. There were 12,804 firms and 1.3 million employees in the software industry.

Comparison of R&D expenditure between China and other major countries (2007)

(Source: Main S&T Indicators 2008-1, OECD)

Rankings of S&T infrastructure of China and other countries (2007)

(Source: World Economic Forum; rankings out of 127 countries)

China’s IT-related rankings in the Global Information Technology Report (2007-2008)

(Source: World Economic Forum)

Comprehensive Network Readiness Index Rank: 57 (out of 127 countries)

• Availability of latest technologies: 78
  
• High-tech exports: 57
  
• Accessibility of digital content: 52

• Laws relating to IT: 56
  
• Intellectual property protection: 70
  
• Quality of competition in the ISP sector: 59
  
• Secure Internet servers: 101

• Internet access in schools: 46
  
• High-speed monthly broadband subscription: 46
  
• Lowest cost of broadband: 50
  
• Cost of mobile telephone call: 64
  
• Computer, communications and other services imports: 49

• Government prioritization of IT: 74
  
• Government procurement of advanced tech products: 22
  
• Importance of IT to government vision of the future: 29
  
• Government success in IT promotion: 48
  
• E-government readiness index: 62

• Mobile telephone subscribers: 87
  
• Personal computers: 84
  
• Broadband Internet subscribers: 48
  
• Internet users: 79
  
• Internet bandwidth: 59
  
• Extent of business Internet use: 60
  
• Availability of government online services: 39
  
• IT use and government efficiency: 38

China’s positions in the EIU E-readiness Rankings 2008, compared with the U.S., Hong Kong, Singapore, South Korea, Japan, Taiwan, Mexico, Brazil, India, Russia and Vietnam

(Source: Economist Intelligence Unit)

The 22nd Survey Report on the Internet Development in China (July 2008)

CNNIC released its 22nd Survey Report on the Internet Development in China (the "Survey Report") in July 2008. The report shows that the number of people with Internet access increased 56 percent (91 million) from last year to 253 million by the end of June 2008, surpassing the number in the United States. Out of those "netizens", 84.6 percent has broadband access. The number of registered domain name under .cn is 12.2 million, exceeding the number under .de (top country domain name for Germany). The latest news makes China the largest Internet country in the world. On the other hand, however, the penetration rate of the Internet in China is still as low as 19 percent, even lower than the global average of 21 percent.

With regard to the usage of the Internet, the "Survey Report" shows that the top ten Internet applications in China are online music, online news, instant messaging, online video, search engine, e-mail, online games, blog/personal space, online forum/bbs and online shopping. In the field of e-commerce in particular, 25 percent of shopping is conducted online; online shoppers reach 63.3 million, increasing 16.9 million people within half a year; 23 percent of all "netizens" has used online payment and online banking; and 29 percent of all "netizens" has used cell phone to browse the Internet in the last 6 months.

With regard to the Internet resource, the "Survey Report" shows that the number of IPv4 addresses in China is 158 million, with annual growth rate of 34 percent, surpassing the number of Japan and only second to the United States. By the end of June 2008, China has boasted 14.9 million domain names, 19.2 million websites, 493.7 GB/s export broadband capacity, and 84.7 million computers with Internet access.

China’s Top 20 IT Companies in 2007

As of 2005, there were about 67,000 IT-related companies in China, with approximately 56,000 of these being manufacturing firms. The combined sales income of the top 100 IT companies accounted for 21 percent of the total sales of the industry. The number of employees engaged in the IT industry grew from 3 million in 2001 to 7.6 million in 2005. The three major areas of China’s IT industry are computer-related goods (including software), telecommunication equipments, and consumer electronic devices. The IT industry, similar to many other industries in China, is strongly export-oriented and foreign capital-oriented.

There were about 11,660 software companies and roughly 1 million employees in the software industry. China’s software industry, accounting for 11 percent of the IT industry, grew fast with an annual rate of 40 percent and with sales of about $49 billion in 2006.

Most IT companies in China cluster in three geographic areas: the Bohai Gulf region (Beijing-Tianjing-Qingdao), the Changjiang River triangle region (Shanghai-Kunshan-Suzhou), and the Pearl River triangle region (Guangzhou-Shenzhen-Dongguan).

(Unit: million US$; Source: Ministry of Industry and Information Technology of China)

The major problems of the IT industry in China

The investment of R&D in the IT industry is low. The official figure from the former Ministry of Information Industry showed that the whole IT industry only spent roughly $9 billion in technical upgrading projects between 1996 and 2000. The fact of the rapid expansion of the sales value of the industry coupled with a low value-added structure in the industry further indicated that China’s IT industry serve as a manufacturing or assembling base, which is at the low end of the global production chain. Many companies do not own the core technologies or intellectual properties behind their products. In recent years, many intellectual property right (IPR) disputes have arisen from the export of China’s IT products. Meanwhile, the cost problems resulted from IPR and technology transfers (e.g., patent fees) are becoming more and more prominent. Furthermore, without its own IPR and/or leading technologies, China’s IT industry faces more and more competition from other low-labor-cost developed countries, such as Vietnam, Malaysia and Indonesia, leading to the lack of sustainability in future growth in the international market.

In order to solve this problem, since 2006, more and more Chinese scholars have called for more support of public policies and government intervention for IT innovation in China. They argued that China should concentrate resources to promote independent IT innovation through public policies. Independent Innovation was later adopted by the Chinese government as an important new strategy for China’s science and technology development.

The U.S. perspective of China’s IT policy

During the Clinton Administration, there was a China Technology Program under the International Technology Programs of the Technology Administration (an agency in the Department of Commerce, abolished in 2007). Under the Protocol Agreement with the Ministry of Science and Technology of China in 2002, the Technology Administration sponsored a host of activities to enhance technology-based relations between the United States and China. One of the activities related to IT policy was the U.S.-China Informatization Policy Roundtable in 2004.

During the conference, US government and industry representatives exchanged views with their Chinese counterparts on policies that promote information and communications technologies and how US companies could better participate in the Chinese marketplace. The roundtable was attended by over 75 government and industry representatives, including officials from the US Department of Commerce, China’s State Council Informatization Office and the Ministry of Information Industry. Issues discussed included network security, privacy, next generation networks, government procurement, software industry, and intellectual property rights protection.

In 2005, some members of Congress expressed their concerns about Lenovo’s purchase of IBM’s PC Division. Their concerns were raised from the ownership of Lenovo. As of July 31, 2008, 42.2 percent of Lenovo was owned by Legend Holdings Limited. The Chinese Academy of Sciences (CAS), owned 65 percent of Legend Holdings. Therefore, some people argued that the Chinese government effectively owned about 27 percent of Lenovo and was the largest shareholder. In 2006, under political pressure, the State Department withdrew its plan to use about 900 Lenovo’s PC on a classified network connecting US embassies, part of a larger procurement of 16,000 Lenovo computers through the government contractor CDW Corp.

Interestingly, also due to a national security concern, back in 2001, some Chinese leaders and scholars tried to push the Chinese government into avoiding the purchase of software from US-based Microsoft. Some scholars have worried that the debate over Lenovo’s ownership and its business with the U.S. government might cause trouble to the operations of US IT companies, such as Microsoft, Dell and Hewlett-Packard, in China as well.

In 2006, the Office of the U.S. Trade Representative issued a global report on trade barriers. Among them was the limit of foreign companies’ access to China’s IT industry. The report criticized China for pursuing "unique national standards that could lead to the extraction of technology or intellectual property from foreign rights holders" and for draft regulations mandating purchases of software produced in China.

In addition, the USTR’s report took the Chinese government to task for interfering in "commercial negotiations over royalty payments to intellectual property rights holders in the area of 3G standards" for advanced wireless networks.

China’s IT policy for the future

The Eleventh Five-year Planning on Information Industry (2006-2010)

Positioning the IT industry as the strategic, fundamental, leading and pillar industry in China’s economic development, the Chinese government has drawn a corresponding Five-year Planning on Information Industry since the 9th Five-year Plan (1996-2000) for National Economic & Social Development. The latest one is the 11th Five-year Planning on Information Industry (2006-2010) ("the "11-5" Planning). According to the statement in the "11-5" Planning itself, the planning serves as the directive document for the development of the IT industry in China. It also lays the policy foundation for industrial administration and national initiatives and projects in IT in the next five years.

The "11-5" Planning sets up the economic and social targets as follows.

• The total sales income of the IT industry in China will reach approximately $1,470 billion in 2010, with an average growth rate of 17.6 percent.
  
• The IT industry will account for 10 percent of the national GDP in 2010.
  
• The export of IT products will remain around 35 percent of the national export value.
  
• The number of mobile phone users will reach 600 million in 2010, with a penetration rate of 45 mobile phones per 100 persons.
  
• The number of Internet users will reach 200 million in 2010 (this target has already been achieved in 2008), with a penetration rate of 15 percent.
  
• R&D capability of key technologies such as software, integrated circuits, digital displays, telecommunications, digital media, high-performance computing and networks will approach international advanced levels.
  
• The IT industry will have a host of core technologies and own the intellectual property rights.
  
• University-industry collaboration will be greatly improved.
  
• China will play a greater role in the international communities in setting up the technological standards.
  
• The share of China’s IT industry in international market will be increased and the competitiveness of China’s IT industry will also be improved.
  
• The industrial scales of software, integrated circuits, and electronic chips will be doubled. The whole industrial sector will move further up in global production chain.

In order to achieve the above targets, the "11-5" Planning indicates that the Chinese government will fund and administer the following IT-related key projects.

• Integrated circuits
  
• Software
  
• Next generation mobile communications
  
• Next generation Internet
  
• Digital media
  
• Broadband communications
  
• Advanced computing
  
• New electronic chips and components
  
• Telecommunications service
  
• Network and information security

The "11-5" Planning also indicates the policies and measures the government will adopt in the five year period.

• Establishing supportive policy and regulatory frameworks and furthering the reform of government administrations
  
  • Carrying out the Electronic Signature Law;
    
  • Studying and creating specific supportive policies for digital TV, new displays, etc.
    
  • In compliance with the WTO rules, increasing the support of domestic electronic information products through governmental procurement;
    
• Optimizing the innovation systems and improving core competitiveness of the IT industry
  
  • Helping enterprises increase R&D expenditure, obtain independent intellectual property, create well-known brands, and improve international competitiveness;
    
  • Supporting and encouraging re-innovation after technology absorption, integrated innovation, and original innovation;
    
  • Compiling the "Category of Key Technologies and Products with Independent Intellectual Property Right in China’s IT Industry" and updating it regularly;
    
  • Improving industry-university R&D collaborations;
    
  • Encouraging enterprises participate in the creation of technological standards at international level;
    
• Improving the utilization of foreign investment and further encouraging the IT industry "go-out"
  
  • Encouraging foreign investment in establishing R&D and operation centers in China;
    
  • Integrating the "go-out" strategy of the IT industry within the national strategies of foreign affairs and trade;
    
  • Helping enterprises invest overseas and participating in international forums and organizations;
    
• Improving the financial and tax environments for the IT industry
  
  • Keeping government investment in the IT industry at both national and local levels;
    
  • Creating favorable tax policies for the industry, especially the tax incentives for independent innovation;
    
  • Establishing venture capital systems and encouraging entrepreneurship in the industry, especially in the fields of integrated circuits, flat-panel displays, etc.
    
• Improving the education and training in IT-related fields

The State Informatization Development Strategy (2006-2020)

The State Informatization Development Strategy (2006-2020) was published jointly by the General Office of the CPC Central Committee and General Office of the State Council in 2006. It set forth China’s goals in informatization development for the next fifteen years. It lays a foundation for China to progress toward the information society.

The Strategy categorizes informatization application systems into four major fields as follows:

• Social informatization;
  
• Cultural informatization;
  
• Government affairs informatization; and
  
• Military informatization.

The strategic objectives for informatization development in the next 15 years are:

• Providing comprehensive and accessible information infrastructure nationwide;
  
• Strengthening capacities for independent innovation of IT;
  
• Optimizing the IT industry structure;
  
• Improving national information security level;
  
• Making effective progress in building an information-oriented national economy and society;
  
• Establishing the new development model of industrialization;
  
• Improving the institutional environment and policy system for national informatization development;
  
• Enhancing the national capability of IT application; and
  
• Laying a solid foundation for building an information society.

The Strategy specifies the objectives in nine key aspects:

• Promoting informatization of the national economy;
  
• Promoting e-government;
  
• Cultivating advanced network culture;
  
• Promoting informatization of the society;
  
• Improving comprehensive information infrastructure;
  
• Developing and utilizing information resources more efficiently;
  
• Improving the competitiveness of the IT industry;
  
• Building a national information security system; and
  
• Improving national capability of IT application and training more qualified workforce in the industry.

In order to create a supportive institutional environment for informatization, the Strategy encourages the policy initiatives in the following areas:

• Policy framework and institutional reform;
  
• Investment and finance policy and reform;
  
• Technology standards;
  
• Law and regulations;
  
• Internet governance;
  
• Information security;
  
• Intellectual property;
  
• Human resource; and
  
• International exchange and cooperation.

The Strategy calls for the following plans:

• Plan of education and training for national information skills;
  
• Action plan of electronic commerce;
  
• Action plan of electronic government;
  
• Plan of development and utilization of information resource of online media;
  
• Plan of narrowing down the digital divide; and
  
• Plan of independent innovation in key information technologies.

References and further readings

• S. Wunsch-Vincent and G. Vickery, Made in China: Information Technologies and the Internet, The Global Information Technology Report 2006-2007: Connecting to the Networked Economy, World Economic Forum, 2007.
  
• Z. Gou, Innovation in China’s Electronic Information Industry, China Communications, June 2006.
  
• Anonymous, Made in China, The OECD Observer Issue 257, October 2006;
  
• S. Lemon, Chinese IT Policies Raise U.S. Concerns, Computerworld, Vol. 40, Iss. 15, April 2006.
  
• D. Manzullo, Wrong to Support China’s State-Owned Enterprise, Wall Street Journal, February 2005.
  
• M. Zhang, Information Technology Policy-making in the People’s Republic of China, International Journal of Public Administration, Vol. 25, Iss. 5, 2002.