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China's economy continues to rapidly expand despite the government's efforts to reign in growth by restricting credit and even increasing interest rates—the first time in nine years. The country's economy grew by 9.5% in 2004 over the previous year, faster than 2003's 9.1%. While a currency pegged against a weakening dollar is a factor, China's increasing raw-material purchases and energy consumption point to fast-paced industrial growth. For instance, the Institute of Electrical Engineers of Japan (IEEJ) estimates China's power demand grew by 15.3% in 2003. The sales revenue this year from China's electronics and information industry is expected to reach $354 billion (excluding software), growing at about 24% over last year. By the end of Q3 2004, the mainland's electronics and information industry had already achieved revenue of $226 billion. Also by that time, the three main sectors—consumer electronics (excluding home appliances like refrigerators), communications and computers—accounted for close to 65% of total revenue from China's electronics industry, with components making up 30% and other products accounting for the remainder. China also continues to "hand-tool" its economy and laws toward compliance with the WTO. Its revision of various regulations to allow better protection against IPR violations is expected to start showing results over the next few years. China is running a campaign focused on 15 provinces, autonomous regions and municipalities, including Beijing and Shanghai, to protect IPR rights. The campaign emphasizes protection of trademarks, copyrights and patents, and covers imported and exported goods, exhibitions, wholesale markets, OEM manufacturing, and printing and duplication. The government is deliberating a proposal made in the third quarter of 2004 for rationalization of the corporate income taxes. The new single corporate tax rate could come into effect as early as 2006. The government has also been running a pilot program of VAT reforms in three capital intensive provinces dominated by heavy industry. The new value-added tax is expected to be a consumption-based system that will allow for tax deduction on outsourced fixed assets and depreciation. Current regulations allow tax exemption on fixed assets of foreign investment projects while local companies are not covered by such provisions. Government support to the IC design industry has resulted in over 463 companies in this segment. While the growth in the number of IC design houses finally slowed in 2004, China output 9.419 billion ICs during the first half of that year—a growth of close 55% over the same period in 2003. China's IC output is expected to continue growing at a CAGR over 34% from 2004 to 2007. And that growth will be matched by the 25% growth in the country's appetite for integrated circuits over the same period. Local fabs have also performed well, providing support to the IC design industry. Buoyed by a higher worldwide demand last year, most fabs ran close to capacity and at least one industry source estimates China to account for 20% of the global foundry market in terms of value this year. In-depth analysis
Communications Industry Outlook: China, the fourth in a series of annual China focused reports, examines the performance of the local industry and presents the opportunities and challenges of doing business in China. The report provides an in-depth treatment of the telecommunications sector along with a rigorous analysis of the technological and design challenges facing China's electronics engineers.
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