China's high-tech industry fared rather well in the past year with its role as a driving force behind the national economy going from strength to strength. Its share in the overall industrial output has increased from 24 percent in 2001 to 27 percent in the period from January to May of 2002.

Building on last year's strong momentum and thanks to an array of favorable factors, it is likely that high-tech industry will make new headway in 2003.

First, the continuing dynamic national economy would fuel the demand for high-tech products, thus buttressing its development. Second, the positive contribution of China's World Trade Organization accession will be further unleashed this year.

More importantly, investment in the telecommunications sector, which was depressed last year due to industrial reorganization, is expected to rebound in the later half of this year as the reorganization is wrapped up. This weighs heavily on the high-tech industry because the telecom sector is still the speeding locomotive of the high-tech industry.

Although the outlook is generally rosy, high-tech industry is still beset by a host of festering problems, which could hamper its development if no remedies are prescribed.

Though enjoying a brisk advancement, the growth quality of the high-tech industry is on somewhat of a downward spiral. The low-cost added value that features prominently through China's high-tech products has plagued the country's high-tech industry and regrettably, instead of showing sign of a turnaround, the situation is likely to deteriorate further if no measures are taken to counter this trend.

Furthermore, China's high-tech industry is more susceptible to global economic fluctuations than the country's other industry sectors because most of the domestic high-tech enterprises are export-oriented. The fact that the country's high-tech sector is heavily dependent on foreign investment adds more uncertainty to its development.

Those are the structural ailments of the country's high-tech industry and calls for unremitting, long-term strategies to tackle them.

In terms of the adverse factors China's high-tech sector will encounter in 2003, the following should also be noted.

The increase in the rate of fixed investment is likely to decline this year, which could weigh down industrial production, the high-tech sector included.

The slow pace of the world economic recovery could cast a shadow on China's exports and high-tech products will not be immune to this uncertainty.

Adding to the precarious situation, the surging high-tech product imports wave witnessed since the later half of last year has maintained its upswing trend from then on. With the tariffs further lowered, more foreign high-tech products are expected to flood onto the Chinese market, posing mounting challenges to domestic high-tech firms.

Nevertheless, high-tech industry could still maintain the upsurge momentum this year with output and exports registering annul increases of 20 percent and 25 percent respectively, taking into consideration all of the factors.

However, proper policies and measures are called for to guide the development of the high-tech industry.

The government investment structure should be adjusted, tilting more funding to the high-tech sector. State investment should be mainly used to assist research projects that are of strategic significance. The government should encourage high-tech firms to spend more on research and development by granting favorable policies.

A financing mechanism and a multitiered capital market should be cultivated to encourage and facilitate the establishment of high-tech firms. And preferential policies such as tax rebates could be wielded as leverage to spur high-tech product exports.

(China Daily January 28, 2003)