Posted on 02/28/2004 9:18:25 AM PST by maui_hawaii
BEIJING -- For years, China has been trying to end Microsoft Corp.'s monopoly on its computers. It has tried to develop its own operating system. It has appealed to the patriotism of consumers. Now, it is turning to the law.
Officials say a new law will be announced by this summer requiring a minimum percentage of software bought by the government be produced in China. That's crucial in a country where the government accounts for 25 percent of the $30 billion software market.
No one is saying what that minimum will be -- some say it may be as high as 70 percent -- but one thing is certain: Linux will be the beneficiary.
"When the government purchasing law comes out, Linux will win a piece of the market," said Fang Xingdong, chairman of China Laboratory, an independent software consulting firm. "Of course, the party that will be most affected will be Microsoft."
Microsoft did not respond to requests for comment. But the company has been trying to woo China. CEO Steve Ballmer visited in November and signed an agreement with the Ministry of Education to provide $10 million to promote computer use in schools.
China says it is merely trying to level the playing field for its own software companies.
"If a software program is dominant for a long time, it's harmful for the development of the software industry," said Li Wuqiang of the Ministry of Science and Technology.
A big factor in China's reasons for preferring Linux is cost. The Linux operating system is essentially free, while Windows is considered unreasonably expensive.
"I believe the era of exorbitant profit for software should end," Li said. "Basic software services should be cheap, just like water, electricity and gas."
But the primary reason, one that is repeated by officials and in the media, is a nationalistic one. China believes that by developing its own operating system, it will have control over its destiny.
"An operating system determines the fate of the IT industry in a country," Lu Shouqun, a former government official who advises several software companies, told the state-run Guangming Daily.
It's no secret that China's goal is to have an internationally competitive software industry. Linux, it believes, could be the key to achieving that.
Over the years, China has been handing out grants to almost any company working on a Linux product. Fang said the Ministry of Science and Technology will invest more than $60 million by 2005 and the Ministry of Information Industry more than $12 million on all types of software.
So far, Linux has not made big inroads. IDC software analyst Jenny Jin estimates it has "a very small percentage" of the operating system market, probably less than 4 percent.
It is far more common on servers than on desktops, with 20 percent of businesses having at least one server running Linux, according to Gartner Inc., a market research firm.
China lags the rest of Asia, which is increasingly turning to Linux.
On average, 42 percent of businesses in the Asia-Pacific region have at least one Linux server, said Gartner.
However, China's Linux market is expected to expand quickly, with a compound annual growth rate of about 40 percent from 2002 to 2007, according to Jin.
While the software purchasing law will apply only to the government sector, software makers see the market as nearly unlimited. Plus, once government agencies switch, it "will lead the way for enterprises and consumers to use domestic products," Fang said.
But Microsoft's bottom line will not be immediately affected by the new law. For one thing, its customers consist mainly of big enterprises, said Fang.
The government market is relatively new and doesn't always pay full licensing fees; piracy is rampant.
Furthermore, it will take another year or two before Linux applications can compete with those for Windows, Fang said.
The law will not mean all foreign companies will be shut out. China's concept of "locally produced" will embrace anything developed here by multinational companies.
This definition allows China to not only gain access to foreign technology, but also have a generation of its own engineers trained by foreign companies.
"If a foreign company puts its R&D in China, this can count as local, but they have to really be doing R&D in China, not just sales," said Li, the government official.
"It's like Mercedes coming to China and saying, 'Here are the specs of the car, here's a truckload of cars, here's the entire factory equipment, and this is how you make the car, and now it's yours. You can change the Mercedes name to whatever, or if you want to improve it, go ahead,' " said Gong Li, the lab's general manager.
Sun won't make much money on the deal, but it has helped with sales of Sun's hardware in China, according to reports in the state-run media.
China's domestic Linux players, of course, will reap the most benefits from the new law.
Red Flag was one of the earliest developers and, with financial support from the government, gained about 29 percent of the market in 2002, according to IDC. Yet its CEO and president quit in December amid reports that the company was losing money and contract bids.
Qin said China Standard should have no problem achieving its aim of becoming China's largest Linux company within two years, but acknowledges that the company will still need a couple more years of government support.
He said, "In three to five years, assuming normal development, Chinese software, or at least Linux, will be able to stand up and compete with international companies."
BTW the 25% number is wrong, very wrong, depending on if you count or don't count the government's half state owned "private sector"...
Otherwise they can't sell in China...right?
I teach computer science at a small university. We have a fair number of Chinese students show up to get a Master's in computer science. Initially, they're all gung-ho to get a degree and go home. Then they discover small pleasures like car ownership and freedom of speech. After that, they are willing to practically give away their skills just to have a company in the U.S. hire them and sponsor them for a green card.
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