The State Council’s Several Policies on Further Encouraging the Development of Software and Integrated Circuit Industries, referred to as Document 4 or the New Document 18, is a continuation and substitution of the previous Document 18. According to Huo Zhaokun, president of Biaoqi Group, Document 4 carries on the spirit of the previous policies, which spelled out brighter prospects for China’s high-tech information service sector and offered more freedom for the IC industry to help local firms grow in size and strength. The policies were formulated with a commanding view of the entire industry and displayed a full understanding of the driving force of policies on the IT industry. Their interpretation and implementation, however, are the parts which concern firms the most.

 

China’s software industry has clustered in four primary locations: Beijing, Shanghai, Nanjing and Guangzhou. With a total industrial scale around 200 billion Yuan (USD 31 billion), they are badly in need of policies to address their problems. A series of projects, including trial and demonstration projects and policy discussions, are to be organized according to local conditions. According to Huo, the original Document 18 is still in effect and people are discussing the means and degree of the implementation of Document 4. Some concrete policies, such as taxation and investment, are not yet in place. Authorities which are busily interpreting and discussing the new policies include, the Ministry of Industry and Information Technology, the tax office of the Ministry of Finance, the National Development and Reform Commission, the Ministry of Commerce, and the two trade associations-China Software Industry Association and China Semiconductor Industry Association. Many firms are waiting eagerly for third-party institutions of the government to carry out the policies to bring them some real benefits as early as possible.

 

Document 4 contains 34 articles, including 29 related with the IC industry. In the original Document 18, the word “software” appeared 106 times, while “integrated circuit” appeared only 24 times. In the new document, however, “software” appears 82 times and “integrated circuit” appears 61 times. Obviously, the new document features an elevation of the position of the IC industry.

 

Document 4 contains some important statements and definitions regarding integrated circuits as well as the research, industrialization and application of key technologies, said Huo. Favorable policies are given to China-made software, e-government and information processing service. Integrated circuits and key technologies constitute the most important part of intellectual property. As a Chinese academician once put it, every year China imports more chips than oil. Of the soft imbedded parts of China-made hardware, for example, most new intellectual property rights are in the hands of international firms. The policy incentive this time should greatly support the update of intellectual property. Industrialization will come soon once the time and place limitations on some European and American intellectual property rights are removed.

 

One article comes out promptly and directly at key issues, stating that “efforts must be made to further regulate the market order of software and integrated circuits, strengthen anti-monopoly work and crack down on the abuse of intellectual property to eliminate and limit competition and the abuse of market domination for unfair competition.” In the field of integrated circuits, monopoly and market control by foreign firms are unimaginable. Using their established platform and position, such firms often take malicious methods to block out late comers (mostly Chinese firms). The base-band chip, for example, a central part of cell phone chip, once saw over a 90% monopoly by foreign firms, which used menacing methods, such as cutting off supply to drive customers away from their rivals and firms with whom they did not have cooperative relations. After Chinese firms accessed the market by breaking technological and market barriers, these foreign firms resorted to price wars to beat them down. The issuance of Document 4 might reverse China’s dependence on foreign firms for most key technologies.

 

 

Regarding the efforts mentioned in the new Document to set up long-term mechanisms to promote software copyrights, Huo believed that software copyright will vanish in the long term because software is going towards the direction of service. Users only care about the terminal environment instead of server configurations. For them, software copyright is a black box they need not care about. It is up to operators to purchase, and has nothing to do with end users. The once powerful Microsoft has now almost been taken over by its strong rival Google, and also by social network Facebook. Through network services and operations, Chinese firms also can be expected to fight such copyright-relying giants as Microsoft and finally replace them.

 

As the new-generation of information technology moves on, open-source software might rise to lead the trend, said Ni Guangnan, academician of the Chinese Academy of Engineering. Private software used to dominate the PC era during which copyright purchase was a must. But now things have changed with cloud computing, the Internet of things, and mobile web. First, 90% of world renowned companies offering cloud computing service might operate on open-source software. But as open-source software license (exclude AGPL) does not request source opening from Web service software, not all these applications opened their sources. Second, globally, open-source operation systems have surpassed close-source systems in smart cell phones during the second quarter of 2010. Third, Garnet predicted that by the end of 2011 at least 80% of commercial software solutions would contain substantially open software. Fourth, equipment platforms of cloud servers and the Internet of things, which far exceed PC in number, would mostly based on open-source software. Judging from all these issues, we should pay great attention to open-source software and firms should blend in to make good use of it.

 

Copyright on the user’s end will become a thing of the past, just like some old frameworks did, said Huo. It is the best time for China to do open source software, which doesn’t mean being free of charge, since the value mostly comes from service. The fast development of software service has proven the social acceptance of such a mode. Huo said, “I believe intellectual property is perpetual, but software copyright will certainly become history with applications changing into service.”

 

The fading out of copyright didn’t affect the transfer of intellectual property, Huo concluded. Presently there are two common practices in the world. One is once-and-for-all purchase by large customers for long-term use and protection, like Microsoft and Apple over the intellectual property of mouse; the other is rights given to medium-and-small-sized enterprises and individuals who charge according to time or need. It means IP protection still exists and would become all the more important. Firstly, it will be extremely hard to tell one right from another as they become highly similar as a result of technological advances. Secondly, it will be increasingly difficult to trace back IP rights, as they are put into chips and shown in chips or service. Without special means of investigation, the tracking-analysis and comparison at the chip level-would be extremely long and sophisticated.

 

 

Huo agreed with the reporter’s opinion that Chinese firms, at the lower end of software outsourcing, are still laboring for others. Software clashes with intellectual property, Huo pointed out, because Party A strictly defines outsourcing; from the research environment, intellectual property, to the application of outcomes. In coming few years or fields-are all strictly defined by

Party A. For a decade Chinese firms have been doing “grey packages” from European, America, Korea and Japan, which means code-level development of low technological content, with more important stages such as consultation and services monopolized by foreign firms. But now, with the new policies aiming at boosting domestic demands, Chinese firms can slowly turn it into their own industry by doing consultations, unpacking and service. Huo also warned us of another practice whereby international giants like IBM and HP sign deals in the name of their Chinese branches, but later send them to Chinese firms after unpacking. The foreign firms reaped the lion’s share, leaving Chinese firms sweating for them.

 

Moreover, developing software outsourcing is beneficial to our national economy. As a knowledge-intensive industry, it is expected to create a million jobs yearly for our vest number of college students and new graduates.

 

Secondly, it helps to boost the foundation of Chinese software and information service. Once condemned to doing copy work, local firms now have internal and external markets and they will to able to go through the whole process of software development, from testing, coding, distributing and the final packing. The government’s taking out the service part will play an important role in promoting the industry. Biaoqi Group worked together with related institutions to set up the International Software Cooperation Organization in 2008, which includes 176 cooperative companies in China. It set up a company in Japan in late April for information service outsourcing of the country’s reconstruction. A Singapore branch is planned in May for the outsourcing of software and information service. At home, we are negotiating with the Ministry of Industry and Information Technology, the State Administration of Foreign Experts Affairs and several local governments on sending a large amount of business to companies. The role of policies is obvious, and we still need the participation of third-party institutions and enterprises.

 

The new policies must be carried out from a commanding view of the entire industry, Huo stressed. China’s domestic demands are still dominated by foreign firms. If the situation remains unchanged, China’s outsourcing market will become a back garden of European and American firms that can be taken away at their will. This does no good to China because it sweeps away all secrets of the country.

 

Talking about the importance of information security, Ni Guangnan once said: “The importance of software industry can be judged from two aspects: output and information security. In fact China’s software industry is still rather weak, with the output last year standing at around 1 trillion Yuan (USD 154 billion); the number is not small, but not big enough either. On the other hand, software is connected to state security, as in the fields of finance, transportation and energy. Now we must get rid of the mindset of putting hardware above software, since software generally determines the behavior of hardware.

 

The strategic position of software in defending state information security is indispensible and can be viewed as an indicator of a nation’s strength. In an era of information, it is highly problematic to run the whole society on foreign software. Software and information service might not contribute so much to the GDP. As we are already in the 21st century, the state has asked us to develop a new-generation IT industry, which dictates our national security in the future. Therefore we must pay special attention to the strategic position of software.”

 

Document 4, formulated by weighting the interests of the state and firms, will surely bring a sweeping change to China’s software and information service industry.