1

Developing China’s software industry – crucial

government guidance and capitalizing on open

source opportunities on the road to “Innovation

2020”

Alexander Schenk (Student ID: 19447181) Asian Studies Program University of Hawaii at Manoa Fall 2013 Plan B paper Committee members: Associate Professor Cathryn Clayton, Professor Reginald Yin-

Wang Kwok, Associate Professor Lonny Carlile

Defense date: October 31st 2013, Moore Hall 319, 3pm-4:30pm

2

Introduction

Historically, China was long known as a nation of innovation. Printing paper,

gunpowder and the compass all originated from the Middle Kingdom. Fast forward to

2013 and China has become a global economic power with its sights set on

becoming a leading innovator once again. Add the global financial crisis of 2008,

which has made scientific innovation more important to economic success than ever

before, and the “innovation 2020 program”, an extension of the Knowledge

Innovation Program (KIP) launched by the Chinese Academy of Sciences in 1998,

has become the focus of long-term development by the Chinese government.

Members of the PRC’s top leadership have associated China’s long-term prosperity

with reforms toward an innovation-oriented technology system.1

The current five-year plan places emphasis on “indigenous innovation”, which the

government thinks it can foster by subsidizing “strategic” industries and strong-

arming foreign firms into transferring intellectual property to budding national

champions. 2 Materials science, information technology, public health and the

environment are among the priority areas of “innovation 2020“.3 The existence of

these five-year plans in China to this day illustrates the important role of the central

government leadership when pursuing a particular strategy of economic development.

1 See Chen, E. Yegin, “Technological Development and Cooperation in Greater China”, Managerial

and Decision Economics, Vol.16, No.5, Special Issue: Hong Kong: The Economy in Transition (Sep.-Oct., 1995), pp.565-579. 2 The Economist Newspaper Limited, “Innovation in China: From Brawn to Brain – If China Is to Excel

At Innovation, The State Must Give Entrepreneurs More Freedom” in

http://www.economist.com/node/21549938 March 8th 2012.

3 Nature – International Weekly Journal of Science,” China Sets 2020 Vision For Science” in

http://www.nature.com/news/2011/110201/full/470015a.html February 1st 2011.

3

The promotion of an innovation economy seems a reasonable strategy, given China’s

current economic situation. With rising blue-collar job wages in recent years, the PRC

is no longer a clear-cut favorite for cheap manufacturing labor. Other nations such as

Vietnam have become more attractive alternatives. It seems the time of cheap labor

in China is coming to an end. However labor costs are only one variable of the cost

equation. Unlike Vietnam, China has a reasonably developed infrastructure,

sophisticated supply chains and the advantage of scale.4

Yet critics of this plan, such as the OECD 5 , have argued that despite the

government’s recent investments into R&D, too little of that money goes into research;

the lion’s share is spent on development. “Innovation 2020” places a larger emphasis

on applied research and thus also “presents a major challenge to the management

and organizational capabilities of the academy [CAS6]”, says Richard Suttmeier, a

science-policy researcher at the University of Oregon in Eugene.7 Suttmeier argues

that most CAS institutes are focused on academic disciplines and lack the

infrastructure needed for commercializing research or directing it towards national

needs.

One additional major obstacle for potential private-sector innovators is piracy. The

enforcement of intellectual property rights in practice remains insufficient. The

favoritism shown toward certain state-owned enterprises further hinders innovation

by companies which are less connected to the central government by depriving these

4 The Economist Newspaper Limited, “Innovation in China: From Brawn to Brain – If China Is to Excel

At Innovation, The State Must Give Entrepreneurs More Freedom” in http://www.economist.com/node/21549938 March 8

th 2012.

5 Organization of Economics Cooperation and Development

6 Chinese Academy of Sciences

7 Nature – International Weekly Journal of Science,” China Sets 2020 Vision For Science” in

http://www.nature.com/news/2011/110201/full/470015a.html February 1st 2011.

4

firms of necessary capital. While expecting the government to forfeit its control is

mere wishful thinking, the degree of the top-down nature of the Chinese state has to

be significantly weakened in order to allow necessary room for experimentation. The

government has to let private investors risk money on ideas they think might work,

and bear the consequences of failure.8

This paper argues that software is a key industry that China must develop in its bid to

create an innovation-based economy. It illustrates the obstacles on the road to

developing this industry and the necessities of a government plan rather than letting

the “free market” determine the course of the industry. Additionally it examines the

nature of the central government’s intervention. Furthermore the research conducted

will characterize the type of software industry envisioned for China’s specific case

and highlight the sectors of the software industry where the PRC is destined for

success. Finally it offers possible measures to smoothen the development of the

software sector as far as possible.

China’s software sector – a key industry

When examining China’s country-specific structural advantages, its large labor force

is frequently pointed out. However, in the software field, it is not so much the sheer

number of China’s labor surplus that gives it a competitive advantage—as noted

earlier, rising blue-collar wages have made other nations such as Vietnam more

popular destinations for blue collar labor. Instead, it is the body of 470,000 well-

educated software professionals that can be steadily replenished and expanded from

the 37,000 computer science bachelors, masters and doctoral graduates each year

8 The Economist Newspaper Limited, “Innovation in China: From Brawn to Brain – If China Is to Excel

At Innovation, The State Must Give Entrepreneurs More Freedom” in http://www.economist.com/node/21549938 March 8

th 2012.

5

that makes China an interesting option for software development.9 Comparatively

lower white-collar labor costs than industry leaders like the United States are another

aspect of China’s competitive advantage.

Another distinct advantage for the PRC’s budding software industry is the potential

involvement of both Taiwan and Hong Kong. The Taiwanese experience in particular

can offer some valuable insights for the PRC. Over the course of multiple decades,

the Taiwanese economy served as a low-cost and supplier able to react rapidly to

market needs, particularly in components and low value-added products.10 From

initial technology imitation, Taiwan began to gradually acquire the skills in

development and design to make necessary modifications and adjustments.11 The

transfer of technology, followed by a sustained effort for domestic development and

production, has led to the emergence of Taiwan as a global leader in consumer

electronics, computer and memory chip production and design. Moreover, Taiwan

has cultivated extensive technology linkages with leaders such as the United States

in order to have a source of technology transfer.12 Aside from merely utilizing its own

university graduates for software development, the PRC can additionally capture

some of the experienced Taiwanese labor force as an additional opportunity given

more competitive wages for software engineers on the mainland as well as the higher

overall dynamic of the Chinese mainland’s software industry. Similar to the overall

influence of the central government in China’s economic development, the successful

9 Ju, Dehua. "China’s Budding Software Industry." IEEE Software. May/June (2001): p. 92.

10

Chen, E. Yegin, “Technological Development and Cooperation in Greater China”, Managerial and Decision Economics, Vol.16, No.5, Special Issue: Hong Kong: The Economy in Transition (Sep.-Oct., 1995), p.567.

11

Chiang (1993) 12

Chen, “Technological Development and Cooperation in Greater China”, p.566.

6

government involvement in changing the industrial structure of Taiwan serves as an

ideal model that the PRC could profitably follow.

Taiwanese companies, on their part, are particularly interested in the potential market

for Chinese language software. 13 Interviews and published reports 14 indicate that

many Taiwanese (and Hong Kong) software firms are contracting software

development functions to Chinese organizations, particularly those tied to universities,

presenting further opportunities for cooperation.

Software and Development

The term “software industry” refers to an industry sector including businesses for

developing as well as maintaining software. Software itself is a set of instructions

directed at a computer’s processor to perform specific operations. Some of the most

popular contemporary business models in the software industry include “cloud

based”15 computing, “license based” (proprietary software) computing, and software

services focusing on training or consulting. This paper will view the Chinese software

industry from an industrial policy standpoint, meaning the focus will be on Chinese

software firms’ performance rather than the development of the industry for the

benefit of the whole economy (which would be the case in an industrial structure

policy approach).

For developing countries, the software industry presents an ideal mode for integrating

themselves into the global information and communication technology market due to

the industry’s nature of being labor intensive, which complements the large labor

13

An average annual growth rate of 25% from 1988 to 1991 14

Free China Review (August 1992), p.44. 15

With cloud computing a large number of computers are connected through a real-time network i.e. the Internet

7

surplus of most developing countries rather nicely, and the worldwide trend of

developed countries outsourcing a vast amount of low-end, software related tasks to

low-cost countries. 16 Furthermore developing the software industry in turn is

conducive to the development of the tertiary (services) economic sector. This

provides employment (and therefore an incentive to create) for an educated

workforce with higher wages. Most importantly, in China’s case, the software industry

provides more room for innovation through the exploration of opportunities provided

by open source software. Failing to innovate can result in losing ground to

competitors, increase difficulty in retaining key personnel or more generally

operational inefficiency. Innovation is a major part of what separates market leaders

from their rivals. Innovation also is helpful for identifying current or future business

opportunities. As a successful business, it is not only essential to respond to current

customer needs, but also to anticipate future trends and come up with products or

services that allow the companies to meet future demand effectively. Hence

innovation helps staying one step ahead of the competition. This is especially crucial

in saturated or rapidly shifting markets. If a company can’t compete on price, it will

need innovative products to stand out. The scale of a business’ innovation can also

be dictated by the amount of innovation by the competition. It is also important to

consider that many businesses survive by copying and adapting the innovations of

others. As a whole, innovation helps advance societies throughout the world. New

and innovative products have the power of increasing the standard of living and to

provide people with opportunities to improve their lives.

The nature of China’s software industry

16

Li, Mingzhi, Gao, Ming, “Strategies For Developing China’s Software Industry”, The Massachusetts Institute of Technology, Information Technologies and International Development, Vol.1, No.1 (Fall 2003),p.61.

8

In China, the legitimacy of the Chinese Communist Party has been linked to

economic development. Considering the huge strides China has made development-

wise since opening its doors to the international community as part of the reforms of

the 1970s17, it has become increasingly difficult to maintain the extraordinary annual

GDP growth rates of 7 percent. The PRC can no longer stay competitive through

mere cost advantages or rapidly customizing already proven product concepts by

creating copies.18 Therefore innovation is a crucial tool for the government to help

insure its legitimization of ruling China. Moreover innovation is a crucial tool for the

government to prevent the so called “middle income trap”, a stagnant economic

development state, where a country can no longer increase a certain level of income.

The limitation of income growth is brought about by the disappearance of competitive

low-wage advantages and the inability to compete on value-added due to diminishing

productivity. China will be looking to avoid the fates of Latin American countries or in

the Asian region Malaysia and Thailand who for decades have been unable to

achieve high-income status.19

As in the recent past, Chinese government policies currently are very supportive of

science and technology. Partially due to this, a large percentage of software and IT

firms have their origins in state- and state-supported sectors. Despite the fact that

China’s hardware manufacturing industry is better known globally, software has

17

The role of the government itself has evolved from a central planning/state-controlled one in the period 1978-85 to an innovation system focused on more advanced R&D during 1985-91, and finally, to the market-oriented reforms of 1992 to the present. The market reforms begun in 1992 involved significant regional experimentation where government control was significantly loosened, foreign investment dramatically accelerated, and the technology sector opened up to other (non-state) forms of ownership.

18

See Appendix 19 Reuters UK edition, “China’s Commitment to Growth will Drive the Global Economy” in

http://blogs.reuters.com/great-debate/2013/09/12/chinas-commitment-to-growth-will-drive-the-global-

economy/

9

become a more integral part of the official strategy for new industrial development. In

2011, the gross income of China’s software sector topped 1.8 trillion Yuan, which

accounted for about 15 percent of the global market.20 Putting a damper on this

enthusiastic trend is the fact that in 2010 about 78 percent of the PC software

installed in China was pirated, compared with a worldwide rate of 42 percent,

according to a report released by the Business Software Alliance in May 2011.

The industry itself consists of mainly small firms, with weak capabilities. 21 While

China has strong capabilities in basic and applied research, it still lags behind many

other countries in innovation and productivity.22 Factors such as rampant software

piracy, high employee turnover and guanxi 23 – the network of dense personal

relationships – are contributing to the weaker capabilities of China’s software firms

and holding back the development of the industry overall.24 Yet the large size and

rapid economic growth of the Chinese economy and its increasing use of IT can

benefit the industry by providing demand for software. Additionally, the uneven

nature and poorer IT capabilities of many domestic customers could provide Chinese

software firms with better opportunities than multinational firms to serve these

20 China Daily USA,“ Software Providers Benefit From Anti-Piracy Campaign” in

http://usa.chinadaily.com.cn/business/2012-09/26/content_15783336.htm September 26th 2012.

21

CSIA (2000). Report on the Chinese Software Industry 2000, China Software Industry Association in Arora, Ashish, Gambardella, Alfonso, From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland and Israel. Oxford University Press. 2005.

22

Chen, “Technological Development and Cooperation in Greater China”, p.574. 23

Guanxi leads to strengthening not necessarily the company with the best product but rather the company with better connections to the government

24

Saxenian, A. (2003). Government and Guanxi: The Chinese Software Industry in Transition. London Business School: Global Software from Emerging Markets, May 2003. in Arora, Ashish, Gambardella, Alfonso, From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland and Israel. Oxford University Press. 2005.

10

customers. 25 Commercial enterprises such as banks and small and medium

enterprises have idiosyncratic processes and legacy systems that are difficult to

change. This opens the door for Chinese software firms making applications

specifically for these industries, giving them an edge over their multinational

competitors. A look at accounting software, an area known for its highly local

practices, shows two domestic firms (UFSoft and Kingdee) responsible for 60 percent

of production.26

Another possible strategy could be the utilizing of the country’s leadership in the

electronics industry and potential collaboration with global software giants to add

value to Chinese software companies’ bundling of Chinese software with hardware

and software manufactured by foreign companies. 27 For example, IBM signed a

marketing agreement with Red Flag to bundle IBM DB2 Express Database software

with Red Flag Linux for use by small and medium-sized businesses.28 By bundling

Chinese software with that of multinational corporations, both parties win: the

success of a complementary program that runs on OSS such as Linux will boost the

demand for some technology products and multinational corporations’ expertise in

such products in turn boosts demand for their portfolio.29

While foreign software companies dominate certain areas of the market, in particular

the Windows-based environment, some local companies have been able to develop

products in niche areas. Companies such as Kingsoft have advantages in application

25

Arora, Ashish, Gambardella, Alfonso, From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland and Israel. Oxford University Press. 2005. p.132 26

Arora, (2005), p.149

27

Kshetri, (2005), p.90. 28

Kshetri, (2005), P.91. 29

Ibid.

11

areas that require more intimate knowledge of the Chinese language or cultural

domain.30 Fields like operating and security software, with a combination of strong

government support and private demand are offering opportunities for domestic

software companies such as Red Flag. The government is increasingly targeting

areas such as Linux, security and middleware31 for such support. The goal has been

to insulate the country from the security problems inherent in using commercial (US)

software, as well as to gain a share of the very large market and to ensure that China

has its own ‘technology base’.32 Moreover the manufacturing sector, with its strong

growth and substantial capabilities, offers additional opportunities for China’s

software firms. There is also a rising demand for embedded software in electronic

products such as PDAs and mobile phones. The availability of substantial

engineering talent is one requirement for success, as is the availability of software

engineering talent, both of which China has in abundance.33

With about 160,000 software professionals distributed across over 6,200 software

companies, the average software firm size in China is extremely small, at about

twenty five software developers.34 Domestic firms command about 33 percent of its

domestic market, with official policy being to increase this to 60 percent by 2015.35

For the most part, China’s software firms can be grouped into two categories. The

30

Arora, (2005), p.150 31

Middleware is computer software that provides services to software applications beyond the ones commonly available from the operating system. It eases communication and input/output mechanisms for software developers, so they are able to focus on specific purposes of the application.

32

Ibid. 33

Ibid.

34

CSIA (2003). Report on the Chinese Software Industry 2002, China Software Industry Association. in Arora, Ashish, Gambardella, Alfonso, From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland and Israel. Oxford University Press. 2005. p.133 35

Arora, (2005), p.131

12

first are so called system integration (SI) firms. Systems integration involves large

custom projects where the software firms provide a combination of hardware and

software and services, including customized software. Of the sixty nine largest firms

with over US$1.21 billion in sales in 2000, thirty two were mainly engaged in SI, while

another nineteen were engaged in a mixture of SI and product development.36 In

2005, China’s revenue from Software and System Integration had reached $65.85

billion (390 billion RMB), and software export value reached 3.59 billion USD (21.93

billion RMB), respectively.37 The second type of firm focuses primarily on product

development, although for various reasons, also ended up doing SI and services.

Worth noting are that a number of companies were university or state supported spin-

offs, and the low level of software capability38 in the overall industry.39

In contrast, most foreign multinational companies sell financial or enterprise software

(SAP), middleware, and enterprise solutions (IBM), or packaged software for

desktops (Microsoft). However, since the majority of multinational software

companies are currently still exploring the Chinese market, they have not created

strong local operations dedicated to localizing and customizing their software. Herein

lie the opportunities for domestic firms at the lower end of the market.40

The majority of the Chinese software industry is concentrated in the nation’s largest

cities in the prosperous eastern part of the country, Beijing in particular, where the

36

Arora, (2005), p.133

37

Hu, Wangjin, Liu Luchuan, Chen Yu. "Software Outsourcing in Beijing: Basics, Trends and Implications." IEEE. no. 07 (2007): p.3235. 38

Capability was defined by what the industry itself uses, which was either some level of organizational capability, based on the Software Engineering Institute’s (SEI) Capability Maturity Model (from level one to five, where five is the highest level of attainment), or achievement of the International Standards Organization (ISO) 9000 quality standard. 39

Arora, (2005), p.139 40

Ibid.

13

bulk of FDI are made. Yet more and more other industrial cities such as Xi’an and

Shenyang are gaining recognition for their strong software firms and industries.41

Characteristic for these regions are the presence of universities with strong IT

programs, government support for the industry and vibrant industrial or commercial

activity.

Not only did the government have a direct influence on software R&D and the

formation of software firms in the PRC but it was also deeply involved in how the

hardware industry grew.42 This had ramifications for software companies in two ways:

First, some of the larger hardware companies such as Founder (a private enterprise

which commercialized university researched technologies) have developed software

arms or are combining software and hardware in systems integration activities.

Second, some hardware manufacturers provide business to software firms, (to run on

their products) ranging from desktop applications to embedded software. In the

Founder example, the company started developing electronic publishing systems,

relying partially on research from the government-funded Project 748 at Beijing

University, which was created by the State Planning Commission to deal with a

perceived critical need in 1974 for a Chinese language information processing

system based on Chinese character fonts. 43 Therefore the government had a

profound influence on firms through provision of intellectual capital, training, research

funding and incentives.

41

Arora, (2005), p.141 42

Ibid 43

Arora, (2005), p.141-142

14

One important structural characteristic is the increased emphasis on open source

software (OSS)44 development and deployment. OSS is attractive as a business

model because it has lower initial costs, slower obsolescence of basic infrastructure

features and therefore a lower total cost of ownership. Red Flag is a small company

employing about 100 people. In 1999, Red Flag began to research Linux, an open

source software substitute for Microsoft’s Windows and other proprietary systems,

and by 2000, the company was in operation.45 The fact that companies producing

operating systems such as Red Flag had CAS backgrounds indicates the importance

of scientific knowledge to the production of operating systems. It also indicates the

importance that the government placed on the development of key technologies.46

While OSS is by far easier for China to implement, the Middle Kingdom will likely face

international pressure to educate their customers and emphasize proprietary

software.

Government procurement is another commonly implemented government tool in the

PRC. A range of policies are in place to address fostering the software sector’s

competitiveness.47 The government keeps a list of key software enterprises eligible

for preferential tax treatment with recent procurement policies strategically further

supporting specific firms deemed to be doing software in the national interest, such

as Red Flag’s Linux.48

44

Such as Linux

45

Lovelock, P., Petrazzini, B., and Clark, R. (1997). The golden projects: China’s national networking initiative. Information Infrastructure and Policy, 5 (4), 265-277. 46

Arora, (2005), p.142-143 47

Arora, (2005), p.145-146 48

Arora, (2005), p.146

15

China’s software industry can exploit the country’s overall growth in numerous ways.

For instance, the sheer size of the economy provides opportunities for the

emergence of sizeable software companies. Additionally, widespread growth across

multiple sectors allows the software firms’ entry into the majority of them, in the

process diversifying the software sector as well as individual firms. Finally, with the

growth of specific sectors, the software firms also have opportunities to specialize in

sector specific software applications (see the banking sector or telecommunications

for example).49 The competitiveness of the market has also been increased by the

entry of a large number of companies, potentially causing firms to either attempt

diversification across software sectors or specializing in specific areas.

In a broader sense, the existence of the “Great Firewall” of China, meaning the PRC

government’s strategic intervention in censoring internet content, also presents an

excellent business opportunity for software companies. By offering virtual private

network (VPN) services, companies are catering to the growing desire of China’s

internet users to access the numerous international websites and services that are

blocked within China, including Facebook, Youtube and Twitter. Originally, VPNs

were designed to offer businesses or individual users a secure means of logging on

to corporate computer systems in public areas such as airports. VPN software lets

the user “tunnel” with the help of a server in a country without any internet restrictions

and encrypts information under an anonymous computer address to prevent

monitoring.50 New companies in the VPN segment are focusing their sights on the

384 million internet users in the People’s Republic of China. By selling their products

to users on a monthly or yearly basis, as well as by offering free software to end-

49

Arora, (2005),p.147-148

50

The New York Times, “Software Makers See A Market in Censorship“ in http://www.nytimes.com/2010/01/16/technology/internet/16vpn.html January 15

th 2010.

16

users but charging advertisers, VPN service providers have been able to take

advantage of popular demand.51 In this sense, due to products such as OSS and

VPN, China’s software industry is uniquely positioned to provide short-term remedies

for deeper rooted and broader problems regarding China’s legal system (which will

be addressed in the following sections). However, given the dominant role of the

central government in developing the software sector i.e. through procurement, the

success of companies trying to side-step specific government control through VPN

technology will undoubtedly be challenged.

Why government involvement is important for China – learning from Taiwan

As part of the four Tiger economies’ (Taiwan, Hong Kong, Singapore and South

Korea) development during the Asian “miracle” from the 1960s to the 1990s, the

Republic of China (ROC) more commonly referred to as Taiwan was able to achieve

rapid sustained economic growth rates, with high levels of equal income distribution

and export oriented policies. During this period, the overall involvement of the

government in industrial politics was essential. Given similar structural conditions,

some aspects of Taiwan’s development into a global software power offer valuable

policy implications for the People’s Republic of China.

For example, the Taiwanese government introduced the Assistance Program for

Strategic Industries (APSI) in 1982. Initially, 151 products were selected as strategic

products for development. By December 1987, the number had reached 214.52 The

majority of the products selected were electronic or information products. To

51

See Appendix “Number of Facebook users in China” which hints at the numbers of VPN availability and subscriptions in the PRC. 52

Chi-Ming, Hou, San Gee, “National Systems Supporting Technical Advance in Industry: The Case of Taiwan” in Richard R. Nelson (editor) National Innovation Systems: A Comparative Analysis, New York, Oxford University Press. 1993. p.395

17

implement its “pick the winners” strategy the government set aside NT$ 20 billion,

which was given to firms in the form of loans. These loans were spent on the

installation of machinery necessary for the selected products’ production. During the

1980s many other assistance programs were introduced additionally. Moreover other

non-financial assistance programs aimed at providing consultancy services for the

upgrading of managerial technology. These programs were created by various

government sponsored institutions. This strategy strongly resembles China’s

strategic development of specific industries.53

A number of institutes and councils in the administrative structure of the government

are charged with the responsibility of advancing science and technology in general

and in industrial technology in particular. Out of all the research institutions, the

National Science Council plays the key role in the development of science and

technology. It is charged with designing research strategy and plans promoting basic

research, recruiting research personnel and coordinating research work undertaken

by the various government agencies. Furthermore it is also responsible for granting

fund to researchers at colleges and universities throughout Taiwan. With already

many similarities to this research institution, the Chinese Academy of Sciences can

potentially broaden its scope of responsibilities.

In Taiwan one of the major disadvantages for small and medium enterprises was

their lack in size and hence their inability to have their own marketing channels.

Overseas mergers were viewed as the quick fix solution in most cases by many

entrepreneurs. The purchase or control of a foreign marketing company with an

already established marketing network was considered favorable to setting up a

53

Ibid.

18

marketing network from scratch.54 One of the major policy tools of the government is

the providing of low-interest loans or part of the investment capital needed so that

private companies can engage in overseas mergers.55 This strategy offers a possible

strategy for Chinese start up software companies to eventually better establish

themselves in the high end of the Chinese software market, which is currently still

dominated by foreign firms.

Overall, the Taiwanese experience illustrates successful government involvement in

changing industrial structure which is a potential model that the PRC can profitably

adopt.

Obstacles on the road to developing China’s software sector

Despite the tremendous development opportunities that the software industry

provides, one has to examine the current limiting factors on the road to development.

For instance, not all government policies necessarily have favorable outcomes.56 The

strategic targeting and supporting of selected firms and software sector by the PRC

government has had mixed results in recent years. While government procurement in

certain product markets has been beneficial to get companies started, too much of

this kind of support might make them fully dependent on continued government

assistance. System integrators that have relied too much on large government

contracts may not be able to foster other customers, and so their growth may be

limited in the future.57

54

Chi-Ming, (1993), p.404 55

Ibid. 56

CCID (2002). 2001-2002 Annual Research Report on China’s IT Application and Demand Market in Banking Industry. Executive Summary.

57

Arora, (2005), p.146

19

Another problem is that despite local software firms having a lot of work through

highly customized, domestic-oriented systems and systems integration work; it is

difficult to derive scale economics from such uneven markets. Furthermore the high

level of competition Chinese software firms face, is another problem. While the

increasing presence of foreign firms at the high end market in specific sectors poses

additional challenges, many local firms are left to compete at the low end of the

software industry. Despite the seemingly large number of firms, in a number of

product sectors, good software firms are few in number, and so a further reduction of

the population of firms or consolidation is possible.58

China’s large, fairly well-trained pool of human resources is an important reason why

it has been able to move into the majority of software sectors more or less effortlessly.

Yet despite the theoretical knowledge to handle basic tasks and analyze relatively

sophisticated data, the Chinese software workers lack the software process skills of

their competitors i.e. India. Only about 10 percent of the IT workforce has experience

with complex programming tasks, and project management ability continues to lag

behind that of India’s.59

In addition, the value of Capability Maturity Model (CMM) certification (the main

measure of organizational process capability) is not yet recognized by most Chinese

software companies, who tend to view CMM as a lower priority for producing

products with only one firm (Neusoft) at the highest CMM level (5) in China. The

companies most interested in exporting software will be the ones seeking higher

CMM certification earlier.60

58

Arora, (2005), p.155 59

Far East Economic Review, July 11, 2002, p.38. 60

Arora, (2005), p.156

20

Lastly and perhaps most importantly from a non-Chinese standpoint, the enforcement

of intellectual property rights (IPR) by the Chinese government is frequently

mentioned in articles regarding Chinese innovation.

In order for China to actually take advantage of its software sector’s potential, it will

have to address a number of issues that are currently hindering it from exploiting its

opportunities.

While the Chinese government has recognized innovation as a strategic priority, it

has so far not identified the potential of OSS in the development of the software

sector. As far as innovation is concerned, as of July 2011, then-Premier Wen Jiabao

noted that “Chinese capacity for indigenous innovation is weak, Chinese industrial

technology is at a low level, and both Chinese basic and cutting-edge research are

relatively unimpressive.”61 Foreign R&D centers in the PRC have led to Chinese

companies focusing more on innovation through competition.

Chinese companies must identify the necessity of developing strong brands and

improved margins through capable innovation-driven leadership while the central

government has to identify the software industry as an opportunity to foster further

sustainable economic growth. Until this is identified as a goal at the national level,

little sustained development can be expected.

A second obstacle worth mentioning is the dominance of foreign companies of the

high end market. The annual growth rate of 18.9 percent in the first half of the 2000s

appears to be a testament to China’s software development success story; however

if one considers that foreign companies account for a market share of approximately

61

China Daily USA,“China Meeting Software Protection Obligation” in

http://usa.chinadaily.com.cn/business/2013-04/26/content_16454057.htm April 26th 2013.

21

60 percent this feat becomes less impressive. 62 Considering Microsoft’s initial

struggles after entering the Chinese market in 1992, for example, it is not hard to

believe that it will most likely not support the development of OSS in China. It took

the company a while to abandon its typical approaches used in the U.S. and

European markets and to adopt a China-specific business model characterized by

low pricing and loosening its stance on intellectual property matters. In fact, tolerating

piracy was actually viewed as Microsoft’s best long-term strategy, since Windows is

now used on approximately 90% of China’s 120 million PCs.63 The most important

factor for Microsoft’s eventual success was the close partnership with the Chinese

government. “If a foreign company’s business strategy matches with the

government’s development agenda, the government will support you, even if they

don’t like you”, according to Tim Chen, previously of Motorola, who was hired by Bill

Gates in 2003.64

The adoption of its own five-year plan, modeled after China’s development strategy

of setting objectives every 5 years, further reflects Microsoft’s adaptation of its

business practices to suit the Chinese environment. With more than 24 million PCs

sold in 2007, in addition to the 120 million already in place, it seems that Microsoft’s

China strategy is paying dividends.65 Unfortunately for Chinese software businesses,

this also means the crushing the hopes of domestic software companies trying to

enter the high end market.

62

Barney, Sebastian, Wohlin, Claus, Hu, Ganglan, Aurum, Aybüke. “Creating Software Product Value in China”. IEEE Software. July/August (2009): p.84.

63

CNN Money, “How Microsoft Conquered China”, in http://money.cnn.com/magazines/fortune/fortune_archive/2007/07/23/100134488/ July 17

th 2007.

64

Ibid 65

Ibid

22

The third, and perhaps most severe, obstacle to sustained development of the

Chinese software industry is the thorny issue of intellectual property rights

enforcement.

The term “software piracy” is defined as “the unauthorized copying of an

organization’s internally developed software or illegal duplication of commercially

available software to avoid fees”.66 For license-based software companies focusing

on proprietary software in their product portfolio, it represents the most severe

problem in the modern software industry.

When applied to the dissemination of software, copyright and patents are the

dominant forms of legal entitlement. 67 Copyright applies to software in a similar

fashion to any other creative production. 68 It prevents others from copying and

distributing the software without compensation accruing to the creator.69 Patents are

applied to software to prevent others from reproducing its unique internal structure.

They have been mainly applied to specific software code or routines that allow the

software to perform certain unique functions. Patents, unlike copyright, provide

protection against reverse-engineering and independent discoverers.70

66

Chiu, Hung-Chang, Hsieh, Yi-Ching, Wang, Mei-Chien, “How to Encourage Customers to Use Legal

Software“, Journal of Business Ethics, Vol.80, No.3 (July, 2008), p.583.

67

Leaffer (1999)

68

17U.S.C. §117 69

McGowan, Matthew K., Stephens, Paul, Gruber, Dexter, “An Exploration of the Ideologies of Software Intellectual Property: The Impact on Ethical Decision Making”, Journal of Business Ethics,

Vol. 73, No.4 (July 2007), pp.415.

70

Leaffer (1999)

23

The patent office of the PRC leads the world in patent applications, more than

800,000 of which were filed in 2008.71 Granted, the majority of these patents are for

so called “petty” patents, meaning mediocre technology under minimal review and

therefore only receiving patents for a 10-year term. However, Chinese companies are

beginning to file “invention” patents more frequently. These patents are rigorously

scrutinized and receive 20 years of protection, as in the West.72 The increase of

patents in turn has led to a rising number of legal disputes. Since 2006 more patent

lawsuits have been filed in China than anywhere else, even litigious America.73 For

the most part such legal disputes involve domestic companies, but recently foreign

companies have received a fair share of lawsuits against them. For example,

December 2008 the South Korean conglomerate Samsung was ordered to pay

compensation to Holley, a Chinese telecom firm specializing in utility energy meters,

power transmission and transformation products.74

According to a 2005 Global Software Piracy survey by the Business Software

Alliance (BSA), the global piracy rate had reached 35%.75 For China specifically, the

U.S. research firm IDC estimated that about 80 percent of software sold in China in

2008 was pirated. 76 Despite decreasing numbers, the 2008 level of piracy was

71

The Economist Newspaper Limited, “Intellectual Property in China: Battle of Ideas – Chinese

Companies Are Enforcing Patents Against Foreign Firms” in

http://www.economist.com/node/13528318 April 23rd

2009.

72

Ibid.; See chart in Appendix 73

The Economist Newspaper Limited, “Intellectual Property in China: Battle of Ideas – Chinese

Companies Are Enforcing Patents Against Foreign Firms” in

http://www.economist.com/node/13528318 April 23rd

2009.

74

Ibid. 75

See http://www.bsa.org/globalstudy/upload72005-Global-Study-English.pdf 76

The New York Times, “Software Pirates in China Beat Microsoft to the Punch” in

http://www.nytimes.com/2009/10/19/business/global/19iht-windows.html?_r=1& October 18th 2009.

24

nevertheless double the global average and about four times the average of

developed countries such as Japan or the United States. Therefore, if China wishes

to further develop its software industry—especially its proprietary software

producers—it is imperative to encourage customers in Asian markets to use legally

obtained software.

But doing so requires understanding the reasons that drive the high piracy rates in

certain markets. As Matthew Cheung, analyst at the research firm Gartner, puts it:

“The big issue that is driving piracy in China today is price. If you’re trying to sell as

program that costs 2,000 yuan to a student living on 400 yuan a month, that’s simply

not going to work out for most consumers”, said Matthew Cheung, an analyst at the

research firm Gartner.77 As a result, Microsoft cut the price of the Office 2007 Home

and Student Edition from 699 yuan to 199 yuan in 2008.

In terms of the software industry, intellectual property protection (IPP) has proven to

be especially important regarding innovation. From a software company’s perspective,

“the fundamental issue is encouraging customers to use its legal software, which

suggests that a company must develop its retention programs, not just traditional

anti-pirating attempts, to enhance customers’ intentions to use its legal software.”78

In 2012, according to Tian Lipu, director of the State Intellectual Property Office, the

number of new filings for software copyright registration in China hit a record high,

reaching 139,000 applications. In 2008, the number was a mere 45,000.79 Moreover,

77

Ibid. 78

Chiu, Hung-Chang, Hsieh, Yi-Ching, Wang, Mei-Chien, “How to Encourage Customers to Use Legal Software“, Journal of Business Ethics, Vol.80, No.3 (July, 2008), p.583. 79

China Daily USA,“China Meeting Software Protection Obligation” in

http://usa.chinadaily.com.cn/business/2013-04/26/content_16454057.htm April 26th 2013.

25

the production value of China's software industry has grown from 75 billion Yuan

($12.03 billion) in 2001 to 2.5 trillion Yuan last year, indicating that the country's

software protection efforts are becoming more effective.

The successful lawsuit of the Chinese Chint Group against French Schneider Electric

on April 15th 2009 further illustrates the eagerness of Chinese companies to protect

their patents against Western companies as well. 80 Moreover, the increase in

Chinese companies pursuing patents abroad is an indicator that the firms intend to

protect their technology even when exporting to developed countries. In 1999

Chinese firms won 90 patents and 1,225 in 2008. Compared to, for example, IBM, an

American technology market leader, which receives about 3,000 patents annually,

that is still relatively few; but a growing trend is still nevertheless noticeable. In

addition, the PRC government’s anti-piracy campaign has spurred a wave of

business opportunities for software providers: county level and higher authorities will

join the governmental departments at the central and provincial level in their use of

licensed software by the end of 2013, according to Duan Yuping, senior official of the

National Administration of Copyright.81

The government’s 2013 IP plan, released recently by an interdepartmental agency

consisting of 28 Chinese government organizations, is intended to fulfill the daunting

tasks of intellectual property creation, protection, utilization, management and

promotion of awareness.82 Despite the lower number of measures on the annual IP

80

The two companies settled in an infringement case, with Schneider Electric awarding Chint over $23 million. 81

China Daily USA,“ Software Providers Benefit From Anti-Piracy Campaign” in

http://usa.chinadaily.com.cn/business/2012-09/26/content_15783336.htm September 26th 2012.

82

China Daily USA, “Government Unveils 2013 Intellectual Property Plan” in

http://usa.chinadaily.com.cn/business/2013-03/27/content_16349483.htm March 27th 2013.

26

plan compared to 2012, Huang Qing, the director of the protection and coordination

department at the State Intellectual Property Office, praised the positive improvement

of more thoroughly defined targets. The new plan aims to integrate IP strategies with

policies for various industries. It calls for increasing efforts in terms of IP risk

assessment and advisory functions in some emerging industries of strategic

importance.83 In addition the plan aims to emphasize the much needed cooperation

among government departments. Qing came to the conclusion that “on the road of

innovation-powered development, the intellectual property strategy plays an

important role in commercializing the fruits of innovation.”84

Potential measures to ease the development of China’s software

industry

The majority of the challenges China is facing regarding the development of its

domestic software industry are by no means insurmountable. Government

supervision of start-up companies becoming too dependent on their assistance,

individual companies’ decision to potentially cooperate with foreign multinationals to

gain access to the high end market as well as continued government investment in

better training and education of personnel with an emphasis on highly valued project

management abilities are a couple of measures that can increase the efficiency of the

competitive landscape of the domestic software market.

The problem of intellectual property right enforcement and subsequent pressures

China is facing from the international community are perhaps the most daunting task

83

Ibid. 84

Ibid.

27

ahead. The opportunities provided by open source software perhaps offer a way for

China to side-step these pressures and potentially change the competitive landscape

in the software market altogether.

Open source software in China

Open source software development in China, such as Red Flag Linux 85 , is a

supervised process with the government playing a vital role in sponsoring, nurturing

and using OSS. Out of the limited numbers on OSS in China, Red Flag Linux is the

most striking with a software market share of 30 percent. Founded in 2000, Red Flag

Linux has been steadily increasing its product portfolio and seems poised to be an

effective alternative to Microsoft’s Windows operating system in China. Currently the

product of Red Flag Linux consists of Red Flag DC Server 5.0 (红旗数据中心服务器

5.0), Red Flag Linux Desktop 4.1 (红旗 Linux 桌面版 4.1) and Red Flag Linux

Workstation 5.0 (红旗 Linux 工作站 5.0). The resemblance of Red Flag Linux and

Windows NT is aimed to ease the transition of operating systems according to Red

Flag Software Co., Ltd. As indicated above, Red Flag Linux from its inception was a

government initiative aimed at developing China’s OSS industry. The two largest

financial shareholders – government-owned Shanghai New Margin Venture Capital

and CCIDNET Investment, a venture capital arm of the Ministry of Information

Industry, further highlight the government’s involvement.

The use of Linux related projects are preferred at both the central and local

government levels since they emphasize the independent copyright owner and thus

are worth pursuing further. Furthermore the main reasons behind the Linux trend are

85

The only reported financially successful open source project in China

28

security and nationalistic concerns86, as well as to develop China’s own operating

systems and eventually break Western domination and monopoly-Microsoft in

particular. With Microsoft operating systems (Windows), application (such as

Microsoft Office or Internet Explorer) and a well-documented history of eliminating

small players in any field in which it wants to have a presence, the challenge

becomes obvious. Once such a monopoly is established, it is difficult for smaller, less

experienced market entrants to be competitive. Not surprisingly, culturally and

politically, some members of the Chinese government are a little paranoid of having

proprietary code, fearing secretly embedded codes in Microsoft software that the U.S.

Government can manipulate to a point where it can bring down China’s computing

infrastructure. 87 OSS offers a lower cost alternative to Microsoft’s monopolized

proprietary software. Hence promoting open source software (OSS) as a government

strategy to foster the software industry is suggested frequently.88 Given the support

by different levels of government, OSS products can expect a fairly broad user base.

In short, OSS provides the Chinese people with an alternative method for software

development that is considered as an effective measure to counteract the problems

linked to software in China such as piracy, security and high cost. Additionally the

educational and instructional use of OSS promises major potential for the Chinese

public at large and for institutions of higher education in particular.

86

Marson, 2005 in Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762

87 Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in

http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762

88

See Li “Leveraging the Open Source Software Movement for Development of China’s Software Industry”, (2004). & Ju, "China’s Budding Software Industry." (2001).

29

Financing has been one of the driving forces behind open-source software

development in China.89 Interestingly, higher education institutions in China have

always had severe financial constraints similar to their Western counterparts in terms

of base budgets for information technology (IT) licensing fees, training, and support

required for application software. 90 Besides various financial constraints and

considerations, open-source software also is viewed as an opportunity for China to

utilize millions of talented, university-educated individuals in its quest to develop its

own brand of copyrighted software to combat the monopoly of Microsoft in China’s

software market.91

One recent development worth mentioning is the “localization” of OSS systems from

Western countries, meaning the customization of software into Chinese.

Overall open source software simultaneously could solve the piracy problem as well

as change the competitive landscape of the software industry altogether. With an

increased awareness and competitiveness in the OSS field, the competition outcome

can improve the overall social welfare.92 Given the general availability of open source

software as well as the OSS technology features themselves, China should adopt a

multi-pronged approach involving domestic OSS development in addition to allying

itself with foreign software firms. The education-related OSS movement will not only

address financial constraints faced by most educational institutions in China but also

89

Miro International Pty Ltd, 2006; Wang, 2004 in Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762 90

Hu, 2005; Yeats,2005 in Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762 91

China Economic Net, 2004; GEEK.com, 2000; MacNewsWorld, 2003 in Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762

92

Li, Mingzhi, Lin, Zhangxi, Xia, Mu, “Leveraging the Open Source Software Movement for Development of China’s Software Industry”, The Massachusetts Institute of Technology, Information Technologies and International Development, Vol.2, No.2 (Winter 2004),p.56.

30

promises to build upon and expand the social and intellectual capital that each

participating organization has to offer.93 Chinese colleges and universities can also

be seen as 'greenhouses' for open-source course management systems and other

software that not only meet the specific needs of participating institutions, but, equally

important, nurture and encourage the initiative and innovation of the tens of millions

of talented individuals studying at colleges and universities within China.94

Also, in broader terms, just because the PRC is competing with multinationals, does

not mean it should not consider possible opportunities for cooperation. Such

alliances between Chinese and foreign software firms will help both sides gain

benefits from becoming co-competitors in niche markets of mutual benefit. 95

Furthermore these potential alliances could help cooperation with international firms

and thus also open new foreign markets for the Chinese software companies.

Despite the recession in the United States and Europe, the demand for software

outsourcing is still increasing as companies are struggling to cut costs. The central

government of China has to work together with universities and businesses to take

advantage of this outsourcing opportunity.

Conclusion

93

Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762 94

Ibid. 95

Li, Mingzhi, Gao, Ming, “Strategies For Developing China’s Software Industry”, The Massachusetts Institute of Technology, Information Technologies and International Development, Vol.1, No.1 (Fall 2003),p.70.

31

The software industry as a whole has developed rather rapidly with many new

entrants in the last couple of years. The significant government support has

generated many software companies and provided work for their offerings. Similar to

the software industry, government intervention had previously played a role in the

development of the hardware industry, which now represents a potential source of

customers for their software counterpart. Continued government support is essential

for the still early stages of the software industry in China. But the handholding by the

government could potentially cause long-term problems as it could lead to technology

picking and be used to support the weakest companies.

In theory China’s large domestic economy provides opportunities to the domestic

software industry in terms of a critical mass of work and in terms of opportunities from

other sectors, at the same time, however, the market has also brought about

opportunities for foreign competitors.96

Resulting from the merging of these factors, specific sectors and types of software

activities tend to be emphasized more than others i.e. manufacturing, certain types of

business software (banking in particular). All these areas are made possible by the

lesser level of multinational dominance since multinationals tend to first try to sell the

same technology without specific modifications for the Chinese market conditions,

which limits their scope to the upper end of select markets. This by no means should

encourage domestic software firms to be “too local”, because specializing only in

local practices hinders the companies to upgrade themselves or gaining economies

of scale since they are only working with unequal customers.

96

Arora, (2005), p.160

32

Given recent OSS trends there are a number of opportunities for research and

development within higher education in China and beyond. Considering China’s

enormous potential for online learning, the influence of China in the OSS movement

will be extensive and potentially relentless.97

Summing up, a thorough study of China’s software industry is not merely an

examination of the development of a key in the PRC’s economy; it also provides a

unique perspective on intellectual property issues, the role of the CCP central

government in continued economic development, and China’s position among

developed economies in the US and Europe as well as other developing countries in

Southeast Asia. All of these aspects are “hot topics” in contemporary Chinese studies

and the examination of China’s software sector contributes to each aspect.

Unfortunately the length constraints of this paper do not leave sufficient room to

examine all of these topics in more detail, but further research in the field would

provide important contributions not just for the business community, but for anyone

interested in the political economy of the People’s Republic of China.

All in all the software sector is an important strategy for China’s overall economic

future, in addition to being a great vantage point from which to understand the

Chinese political economy at this key moment of transition from a manufacturing-

based economy to an innovation/information-based economy.

Bibliography

Arora, Ashish, Gambardella, Alfonso, From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland and Israel. Oxford University Press. 2005.

97

Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762

33

Barney, Sebastian, Wohlin, Claus, Hu, Ganglan, Aurum, Aybüke. “Creating Software Product Value in China”. IEEE Software. July/August (2009): pp.84-90.

Chen, E. Yegin, “Technological Development and Cooperation in Greater China”,

Managerial and Decision Economics, Vol.16, No.5, Special Issue: Hong Kong: The

Economy in Transition (Sep.-Oct., 1995), pp.565-579.

Chi-Ming, Hou, San Gee, “National Systems Supporting Technical Advance in Industry: The Case of Taiwan” in Richard R. Nelson (editor) National Innovation Systems: A Comparative Analysis, New York, Oxford University Press. 1993. pp.384-412.

Chiu, Hung-Chang, Hsieh, Yi-Ching, Wang, Mei-Chien, “How to Encourage

Customers to Use Legal Software“, Journal of Business Ethics, Vol.80, No.3 (July,

2008), pp.583-595.

Gu, Yuanxuan, Xue, Yajiong, Xiao, Zhongdong "Unveiling Secrets of Successful Chinese Software Companies." IEEE. no. 09 (2009): pp.3629-3633.

Hsu, Jane L., Shiue, Charlene W., “Consumers’ Willingness to Pay for Non-Pirated Software”, Journal of Business Ethics, Vol.81, No.4 (September, 2008), pp. 715-732.

Hu, Hongli, Lin, Zhangxi, Foster, William, “China’s Software Industry – Current Status and Development Strategies.”

Hu, Wangjin, Liu Luchuan, Chen Yu. "Software Outsourcing in Beijing: Basics, Trends and Implications." IEEE. no. 07 (2007): pp.3235-3239.

Husted, Bryan W., “The Impact of National Culture on Software Piracy”, Journal of Business Ethics, Vol.26, No.3 (August 2000), pp.197-211.

Ju, Dehua. "China’s Budding Software Industry." IEEE Software. May/June (2001): pp. 92-95.

Kshetri, Nir (2005), “Structural Shifts in the Chinese Software Industry,” IEEE Software, July/August, pp. 86-93.

Li, Mingzhi, Gao, Ming, “Strategies For Developing China’s Software Industry”, The Massachusetts Institute of Technology, Information Technologies and International Development, Vol.1, No.1 (Fall 2003),pp.61-73.

Li, Mingzhi, Lin, Zhangxi, Xia, Mu, “Leveraging the Open Source Software Movement for Development of China’s Software Industry”, The Massachusetts Institute of Technology, Information Technologies and International Development, Vol.2, No.2 (Winter 2004),pp.45-63.

McGowan, Matthew K., Stephens, Paul, Gruber, Dexter, “An Exploration of the Ideologies of Software Intellectual Property: The Impact on Ethical Decision Making”, Journal of Business Ethics, Vol. 73, No.4 (July 2007), pp.409-424.

Online Articles:

34

China Daily USA,“ Software Providers Benefit From Anti-Piracy Campaign” in

http://usa.chinadaily.com.cn/business/2012-09/26/content_15783336.htm September

26th 2012.

China Daily USA,“China Meeting Software Protection Obligation” in

http://usa.chinadaily.com.cn/business/2013-04/26/content_16454057.htm April 26th

2013.

China Daily USA,“ China To Fight Counterfeit Products, Piracy“ in http://usa.chinadaily.com.cn/business/2013-05/25/content_16531858.htm May 25th 2013.

China Daily USA, “Government Unveils 2013 Intellectual Property Plan” in

http://usa.chinadaily.com.cn/business/2013-03/27/content_16349483.htm March 27th

2013.

CNN Money, “How Microsoft Conquered China”, in

http://money.cnn.com/magazines/fortune/fortune_archive/2007/07/23/100134488/

July 17th 2007.

Guohua, Pan, Bonk, Curtis Jay, “The Emergence of Open Source Software in China”, in http://www.irrodl.org/index.php/irrodl/article/viewArticle/331/762

Nature – International Weekly Journal of Science,” China Sets 2020 Vision For

Science” in http://www.nature.com/news/2011/110201/full/470015a.html February 1st

2011.

Reuters UK edition, “China’s Commitment to Growth will Drive the Global Economy”

in http://blogs.reuters.com/great-debate/2013/09/12/chinas-commitment-to-growth-

will-drive-the-global-economy/

The Economist Newspaper Limited, “Innovation in China: From Brawn to Brain – If

China Is to Excel At Innovation, The State Must Give Entrepreneurs More Freedom”

in http://www.economist.com/node/21549938 March 8th 2012.

The Economist Newspaper Limited, “Intellectual Property in China: Battle of Ideas –

Chinese Companies Are Enforcing Patents Against Foreign Firms” in

http://www.economist.com/node/13528318 April 23rd 2009.

The Economist Newspaper Limited, “Intellectual Property in China: Still Murky – Is

the Middle Kingdom Getting Serious About Protecting Intellectual Property?” in

http://www.economist.com/node/21553040 April 21st 2012.

The New York Times, “Software Makers See A Market in Censorship“ in http://www.nytimes.com/2010/01/16/technology/internet/16vpn.html January 15th 2010.

The New York Times, “Software Pirates in China Beat Microsoft to the Punch” in

http://www.nytimes.com/2009/10/19/business/global/19iht-windows.html?_r=1&

October 18th 2009.

35

Appendix

The Wall Street Journal –China, “China: The Jobs Report” in

http://blogs.wsj.com/chinarealtime/2013/03/15/china-the-jobs-report/

Online Marketing Trends, “Number of Facebook users in China septuples”, in

http://www.onlinemarketing-trends.com/2011/02/number-of-facebook-users-in-

china.html#.UpaDIsRDuIo

36

The Economist Newspaper Limited, “Intellectual Property in China: Battle of Ideas – Chinese

Companies Are Enforcing Patents Against Foreign Firms” in

http://www.economist.com/node/13528318 April 23rd

2009.