Prioritising Local Players Has Negative Implications

BMI View: The Chinese government's decision to restrict use of foreign-based software suppliers suggests heightened risks for foreign players in the market. A list of approved anti-virus software providers excluded US company Symantec and Russia's Kaspersky, although the companies both highlight the restrictions apply only to certain types of procurement. The fallout of the US' surveillance programmes continues to reverberate across all sectors.

Both Kaspersky and Symantec deny they have been banned from selling their products in China. The announcement that sparked the concerns came from the government's procurement department, which only included Chinese companies in its list of approved anti-virus software providers. Kaspersky highlighted that the restriction only applied at the national level, and not regional government or companies. The distinction is important, but BMI believes the government's approved list will carry considerable weight for many companies and departments not bound by the restrictions.

The removal of foreign companies from an official list raises the risk for foreign companies looking to operate in China. The country's large economy and growing IT market make it an attractive prospect and key market for strategic expansion. BMI forecasts China's IT market to expand between 9.5-10.5% between 2014 and 2018, one of the highest rates in the region. However, this latest development highlights the Chinese government's preference for local players, which will reduce the opportunities for foreign companies.

China's Place Not Guaranteed
Asia Pacific Industry Risks

BMI View: The Chinese government's decision to restrict use of foreign-based software suppliers suggests heightened risks for foreign players in the market. A list of approved anti-virus software providers excluded US company Symantec and Russia's Kaspersky, although the companies both highlight the restrictions apply only to certain types of procurement. The fallout of the US' surveillance programmes continues to reverberate across all sectors.

Both Kaspersky and Symantec deny they have been banned from selling their products in China. The announcement that sparked the concerns came from the government's procurement department, which only included Chinese companies in its list of approved anti-virus software providers. Kaspersky highlighted that the restriction only applied at the national level, and not regional government or companies. The distinction is important, but BMI believes the government's approved list will carry considerable weight for many companies and departments not bound by the restrictions.

The removal of foreign companies from an official list raises the risk for foreign companies looking to operate in China. The country's large economy and growing IT market make it an attractive prospect and key market for strategic expansion. BMI forecasts China's IT market to expand between 9.5-10.5% between 2014 and 2018, one of the highest rates in the region. However, this latest development highlights the Chinese government's preference for local players, which will reduce the opportunities for foreign companies.

China places in the middle of the regional Risk/Reward Ratings for Asia's IT markets. Its score for industry risks, measuring the protection of intellectual property and the government's attitude to encouraging IT development, falls slightly below the regional average but keeps the country in a strong position relative to its peers. BMI believes there is greater downside risk to this score, potentially pulling the country lower in our ratings. However, the potential for growth in China is unlikely to diminish and we expect the Chinese government to support growth of local players to plug any gaps left by reducing the influence of foreign players.

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