Watch out Microsoft and Oracle: Here come the Chinese software giants!
Beijing is trying to wean China off foreign software, and the way is clear for domestic software producers to run China’s digital economy and then to expand around the world.
Yesterday, the Ministry of Industry and Information Technology reported that total revenues of China’s software industry in the first four months of 2022 were 2.77 trillion yuan ($416.24 billion), a year-on-year increase of 10.8%. Net profits were 278.5 billion yuan ($41.79 billion), a year-on-year decrease of 1.4%. For the whole of 2021, revenues were 9.49 trillion yuan ($1.42 trillion), a year-on-year increase of 17.7% and the highest growth rate in seven years.
The fastest growth is in industrial software, cloud services, big data, integrated circuit design, ecommerce, and information security.
There are 309 listed companies in the software and IT service industry in China:
- 58 companies have a market capitalization in excess of 10 billion yuan ($1.50 billion), and seven have a market capitalization of more than 50 billion yuan ($7.50 billion).
- Some of the largest domestic software companies which reported revenues in excess of one billion yuan ($150.08 million) in the first quarter include NARI Technology Development 国电南瑞, iSoftstone 软通动力, and iFlytek 科大讯飞.
- In the first quarter, 216 listed companies achieved positive year-on-year revenue growth, and 144 achieved positive year-on-year growth in net profits.
The context
The 14th Five Year Plan (2021-2025) has created very fertile ground for domestic software companies. The government is making huge investments in developing basic operating systems, backbone digital infrastructure, AI, and data centers. The industrial internet is being rolled out in the manufacturing sector, with related demand for IT software and services.
- The software industry development plan of the 14th Five Year Plan expects software and IT services industry revenues to exceed 14 trillion yuan ($2.10 trillion) by 2025, with an average annual growth rate of more than 12%.
China is actively discussing implementation of the industrial internet — running Chinese software — with other countries: Yesterday, Lǐ Dōngshēng 李东生, founder and chairperson of TCL Technology (TCL科技), a domestic manufacturer of electronic products and semiconductors, gave the keynote speech at the BRICS Forum on Development of Industrial Internet and Digital Manufacturing in Xiamen. Li explained that TCL has implemented a data-driven production system based on domestically-produced industrial software for manufacturing semiconductors, and that more than 80% of TCL’s core software systems have achieved self-research and development abilities.
As the scope of China’s software industry has expanded, so too have software copyright applications and infringements:
- In April, the director of the State Intellectual Property Office revealed that 2.28 million software copyright applications were lodged in 2021.
- The director also stated that the number of software copyright infringement legal cases have increased substantially in number as well as complexity, covering areas such as source code copyright infringements.
- The high number of cases is an indication that piracy remains rampant in China, but also that, as Chinese companies develop their own valuable IP, the country is now prioritizing the protection of intellectual property rights in the digital sphere.
It should be no surprise that, based on a study of students who graduated in 2021, software engineering majors had the highest income with a monthly salary of 7,205 yuan ($1,081), the only major that exceeded 7,000 yuan.
As with many other industries, Beijing is promoting the adoption of domestic software over foreign software. Oracle and Microsoft are facing serious competition as Chinese software companies step up:
- Kylin 麒麟软件, a domestic operating system that has been under development for decades by China National Software & Service 中国软件, now has in excess of 400,000 compatible adaptations, including 117,096 software programs.
- Shenzhen Kingdee Software 金蝶国际 has developed home-grown HR software for domestic companies, including most notably Huawei 华为.
- Total revenues of China’s IT security software producers was $3.42 billion in 2021, an increase of 31.7% year-on-year, led by Alibaba Cloud 阿里云 — whose security software relies on a combination of AI and humans — with a market share of 28%.
The takeaway
Beijing is trying to wean China off foreign software, and the way is clear for domestic software producers to run China’s digital economy and then, maybe, to expand around the world.
