Lao Qu, a doctor in western China's Shaanxi Province, had been thinking about buying a computer for his family for two years, and he finally made a decision in January and bought a Dell model.

He thought a foreign brand had better quality and services and, most importantly, it was affordable. So he ordered a personal computer, equipped with an Intel Pentium 4 processor and a liquefied crystal display monitor, and paid about 8,000 yuan (US$966) in the end.

Like Qu, many Chinese consumers are taking advantage of lowered prices and increasing competition between multinational vendors in China's personal computer (PC) market. All of these have in turn raised enthusiasm from individual consumers, heating the market over the past year and ensuring high sales for the coming few years.

Dramatic 2003

The development of the PC market in China in 2003 was truly dramatic.

When the SARS (severe acute respiratory syndrome) epidemic broke out on a large scale in China in April, many computer companies were facing great difficulties; their salespeople were not welcome to visit their customers, and the traffic in computer marketplaces dropped sharply. But when they were counting their money at the end of the year, almost everybody was happy.

According to the US-headquartered information and communications technology consulting firm Gartner, shipments of PCs including desktops, laptops and Intel Architecture servers in China reached 13.3 million units in 2003, a rise of 10.4 percent over 2002.

All of the major players, including Asian PC giant Legend, China's second-largest computer company Founder PC, and US powered IBM and Dell all saw growth over the past year. Dell even achieved a growth rate of 63 percent in the past year, with shipments of more than 900,000 units.

A report from domestic market researcher CCID Consulting Co Ltd gave an even better summary of last year's market.

The research house under the Ministry of Information Industry said that shipments of PCs reached 12.94 million units, 17.4 percent higher than in 2002, while sales stood at 92.2 billion yuan (US$11.14 billion) with a year-on-year growth of almost 10 percent.

Zhao Shufeng, a senior analyst with CCID Consulting, pointed out that a healthy economic growth of 9.1 percent for the country was the primary reason for a prosperous 2003 for the PC industry.

The SARS outbreak also boosted businesses and consumers' purchasing demands for computers, he added.

"We saw some declines of PC shipments in the second quarter, but in the third and fourth quarters, the recovery was quite spectacular," said Zhao.

During and after the epidemic, hospitals, and government departments and businesses had to work on the Internet to avoid infection with in-person contact. At the same time, ordinary people were also confined to their homes and many chose to spend more time on the Internet.

After realizing the importance of the Internet and computer networks, many organizations and individuals increased their budgets to buy computers or network devices.

Promotions from PC vendors further pushed purchasing enthusiasm.

With intense competition on the Chinese market, computer makers also had to cut their prices to attract more customers.

CCID Consulting figures show that although PC shipments in 2003 grew by 17.4 percent over 2002, the sales only gained a growth of 9.9 percent.

"Price is the most important factor to stimulate purchasing demands from the education sector and small- and medium-sized businesses as well as consumers, which were the fastest-growing market for PC vendors," said Annie Chung, a hardware analyst with Gartner Asia Pacific.

The lowering prices also gave a strong boost to shipments of laptop computers.

According to CCID Consulting, 1.26 million laptops were sold in 2003, 42.4 percent higher compared to 2002, while sales jumped 26.5 percent to 17.32 billion yuan (US$2.09 billion).

A turning point?

While low prices are believed to be a major advantage as local PC vendors compete with their multinational counterparts, many domestic companies discovered that their competitors already stood on the same line as them in terms of product prices, and took their market shares.

Dell was the most successful PC maker on the Chinese mainland, according to the recent Gartner report.

It overtook Founder PC and became the second-largest computer vendor in China, with a year-on-year growth of 63 percent in 2003. It also took 6.8 percent of the consumer pie, following Legend.

"People tend to buy products from multinationals, because the prices are affordable to them now," said Gartner's Chung.

Dell's local production base in Xiamen in East China's Fujian Province, its US$4 billion local procurement of computer parts, and its service network in 1,580 Chinese cities make the US company able to cover the same geography for almost the same prices.

Other international big names such as IBM, HP and Toshiba adjusted their price strategies and launched many low-end products, including several models, which sold below 10,000 yuan (US$1,200). This is almost the same price as that of a standard Chinese model.

With the aggressive price reductions and its influence among business users, IBM won the No 1 title with 18 percent of the laptop market and surpassed Legend after following it for the past few years.

"An all-around counterattack by multinational firms will be imminent this year," said Sun Pishu, president of the Jinan-based Langchao Group, one of the nation's biggest PC server makers.

Chung agreed with that view.

"2004 will be an important year in the competition between multinationals and local vendors," she said.

This year will be a turning point not only for multinationals, but also for local vendors.

While international companies are closing the gap with local companies in local production, product prices, and market coverage, domestic firms are trying to catch up their foreign competitors in technology and services.

Legend, the biggest computer maker in Asia, is expected to reveal tomorrow its new strategy for this year and after.

Company President Yang Yuanqing was tipped to head the company's PC business by himself and try to strengthen its leadership.

Yang will be paying more attention to Legend's PIPES strategy, which aims to connect all information devices in an organization or home in seamless way and share information between them, a key technology that Legend invented in 2002.

The Chinese company already released three computers with the technology last year, which helped it to build an image as being a high-end market and technology leader among customers.

Meanwhile, Founder PC reorganized its corporate structure and its marketing, sales and service teams will be divided according to customer demographics to better meet their needs.

A healthy 2004

Competition will be more intense this year, but healthy competition will also be good for the development of the whole industry. Chung predicted that the PC market in China will maintain a similar growth rate with that of 2003, at about 10 percent.

Laptops will continue to be a focus of the market with its fast growth. But the desktop market is also likely to grow at a steady pace, as the replacement requirement of computers by many organizations, which bought their computers in 1999 in preparation for the Y2K problem, will start to come forward.

Further, China's determination to give most primary and secondary school students computer and Internet classes will act as a strong boost for shipments of PCs in 2004, making it a high-growth sector.

(China Daily February 18, 2004)