Growth in China’s technology market will slow in 2019 due to geopolitical tensions and economic pressures but will rebound in 2020. Our just-published “China Tech Market Outlook, 2019 To 2020” report forecasts that business and government purchases of technology goods and services will grow by 4% in 2019 and 7% in 2020 in US dollar terms (see the figure). The ongoing trade war between China and the US will slow China’s exports, disrupt supply chains, hurt corporate investments, and shake the confidence of governments, businesses, and consumers in China. These factors, together with the increasing risk of economic recession, mean that technology decision makers need to redefine their digital transformation strategies and shift their spending focus in 2019. This year, there will be three key trends in China’s US$256 billion tech market:


  • Public- and private-sector firms will revamp their strategies to drive digital transformation. Trade wars and the slowing economy will have a large impact on China’s tech spending. Technology decision makers across verticals will accelerate their digital transformation in pragmatic ways — focusing on operational transformation and generating efficiencies. To build its own capabilities and facilitate national reforms, the Chinese government will invest more in core tech domains, thereby driving government tech investment. Technology vendors are also changing their strategies, investing more in R&D to alleviate their dependence on foreign vendors and focusing more on business collaboration and investment in Asia and EMEA than in the US.
  • Investments in software and services will remain strong. Apart from software and services, hardware investments will remain dominant, albeit growing at a slower pace. In 2019, Chinese firms will increasingly seek consulting services to help fill the skills gap and achieve their ambitious plans for emerging technology; tech outsourcing services will help deliver operational efficiencies, which are sorely needed for pragmatic transformation. Market dynamics in China are characterized by investment in four key software areas: cloud, AI, IoT, and eCommerce.
  • Emerging technologies will be critical to powering China’s growth engine. Emerging tech initiatives have been a high priority for the past two years; in 2019, they will serve purposes beyond driving economic growth. Within China, tech vendors have come together with various layers of government to drive technology adoption in areas such as AI and big data analytics. Outside of China, emerging technologies have become the key to expanding China’s ecosystem and attracting foreign investment. The Chinese government has also launched a national strategy and provided resources to spur active participation in global innovation networks.