China’s software revolution – fact or fiction?

I’m not one to believe everything I read in the papers, especially if that paper happens to be one of China’s state run media outlets, but an interesting stat caught my eye in a recent article in China Daily.

The piece detailed how China – infamously a country which has a huge trade imbalance with the rest of the world, flogging it cheap exports – is actually importing more technology products than it exports.

The tech trade deficit apparently stands at $10bn – imports at $32bn and exports $21bn – which is a far cry from its huge overall trade surplus with the US which stood at around $300bn in 2011.

It is an interesting one because with China becoming an increasingly affluent and sizeable market in its own right it’s likely that more and more goods made in the country will not be exported but sold to its own consumers, so it’s hard to see how the government is going to be able to close this gap.

That aside though, the article pointed out that 89 per cent of China’s exports were in the sphere of “computer software”.

Really? The country famous for being the technology manufacturing centre of the world? Where the huge Taiwanese ODM/OEMs have plants the size of small towns, building everything from iPhones to children’s toys?

Yes, China has its successful web companies like Baidu, Tencent and Alibaba, but could its computer software industry really be that successful on the world stage?

Well, no is the short answer.

Gartner’s Matthew Cheung explained to me the likely reason for the unusually high figure is that they have counted revenue from a certain type of outsourced service in that figure.

Companies such as HiSoft, Beyondsoft and VanceInfo offer a raft of services to big name foreign companies looking to localise their own software products in China.

These services, Cheung said, have effectively been calculated as exports, as they are carried out on behalf of foreign companies, even though, aside from some work for the Japanese and Korean market, they are basically China-centric.

I have to say it’s a market I never knew existed but will be an interesting one to follow, because while China may not be the software centre of the world yet, it’s certainly an area where it could end up dominating if it decides to devote the full weight of its resources.

These companies are by no means minor players; some are NASDAQ listed, $10-$100m businesses and they’re already acquiring foreign rivals, said Cheung.

This could yet be the first stirrings of a Chinese software revolution to match that which propelled the country to become the pre-eminent tech manufacturing hub.