China PC Market: Why Investment Declines While the Market Expands

Posted on November 14, 2007
Filed Under China Business |

Shanghai Daily reports on the Ministry of Information Industry’s (MII) report on fixed-asset investment in the IT sector:

CHINA’S fixed-asset investment in the information technology industry grew nearly 28 percent year-on-year in the first nine months, the Ministry of Information Industry said yesterday.

…In the first nine months, China’s IT fixed-asset investment was 185.18 billion yuan (US$24.7 billion), a 27.9-percent growth from a year ago.

But the growth rate was 15.2 percentage points lower than the same period last year, according to MII.

…PC investment in the first nine months was 4.46 billion yuan, a 26.5- percent decrease from a year ago.

So while overall growth for the IT industry has cooled, it remains substantial. It’s the PC market that’s notable. Investment in assembly plants has slowed, even as the market has grown. Numbers are always sketchy at best in China, but CCID provides some figures, via DigiTimes:

The sales volume in China’s PC market reached 7.462 million units in the third quarter of 2007, up 18.1% on year with sales revenues reaching 38.25 billion yuan (US$5.15 billion), up 10.8% on year, according to research firm CCID Consulting, which noted that sales of notebook PCs were still behind the main growth momentum.

Desktop sales volume reached 5.678 million units in China in the third quarter, up 12.4% on year, with corresponding sales revenues of 23.07 billion yuan, up 3% on year, noted CCID. Affected by the impact of competitive pricing and summer promotions for low-end notebooks, the price of dual-core desktops took an obvious downward trend, noted the research firm.

The sales volume of China’s notebook market reached 1.626 million units, with revenues for the segment reaching 12.29 billion yuan and the notebook computer market developed rapidly thanks to increased demand during the summer, stated CCID.

With such respectable market growth, why would investment be cut back? It’s important to remember that “manufacturing”, when applied to the PC industry, is a somewhat misleading term. Design, marketing, sales, service, assembly and packing is what companies such as Lenovo, Dell, and HP really do. They receive components (or assemblies of components) from their suppliers and bolt them together, box them up, and ship them out.

And what was the growth in fixed-asset investment in the electronic components sector? 27.5%. Not all of that is dedicated to the PC industry, but this is the sector that is actually supplying the parts to PC manufacturer assembly plants. Expanding capacity for PC vendors requires an effective supply chain and efficient assembly. It’s their component suppliers that invest in the production machinery.

The Shanghai Daily article does note that investment in the semiconductor industry is down by 16%. Chip production is another sector where China is expanding its share of production. However, China still imports a substantial number of chips (85% in 2006, according to the US’ trade promotion board). Component manufacturers can source their chips either domestically or internationally to support their production runs. Lower domestic production is somewhat irrelevant to their operations.

So don’t worry too much about the investment figures, China’s PC market is not slowing down anytime soon.

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