China's Software Industry to See `Huge' Growth on Policy, Pansoft CFO Says

China’s software industry has “huge” growth potential given the nation’s economic expansion and government policies, according to Pansoft Co.

“The Chinese government has issued a preferential policy to foster the development and expansion of software companies, and this preferential tax policy has been applied to software and other high-tech companies,” Allen Zhang, chief financial officer of New York-listed Pansoft Co., said in a phone interview. “We expect the software industry to maintain higher- than-average growth rates versus other sectors of the economy.”

China will expand outsourcing in the software and information services industries through measures such as providing beneficial policies, Xinhua News Agency reported June 22, citing unidentified officials with the Ministry of Commerce. The government is increasing investment in technology and domestic consumption to offset slowing exports. China’s economic expansion dipped to 10.3 percent the second quarter from 11.9 percent in the first three months of the year.

Pansoft, based in Shandong province, is a provider of business-management software that tracks purchases and handles payroll for the oil and gas industry. Its customers include PetroChina Co. and China Petroleum & Chemical Corp. and competitors in China include International Business Machines Corp. and SAP AG, Zhang said.

The nation’s software industry sales for the first six months of the year rose 29 percent to 604.8 billion yuan ($89.3 billion), the Ministry of Industry and Information Technology said in a statement on its website July 26.

Industry Growth

China’s software services market is forecast to grow around 34 percent this year, while overall industry growth is around 25 percent, Zhang said, citing data from the China Software Industrial Association.

Demand for Chinese software services will increase as the government promotes mergers of state-owned enterprises including coal producers to cut capacity and expands the development of affordable housing across the country, Zhang said. The reforms will require better cost accounting that software can provide, he said.

A gauge of Chinese technology companies has gained 8.3 percent this year, the most among the 10 industry groups in the CSI 300 Index. UFIDA Software, which makes financial software, has gained 4.9 percent in 2010 compared with a 21 percent decline for the CSI 300. Pansoft’s shares have slipped 1 percent this year on the Nasdaq Composite Index, compared with a 0.4 percent advance for the Nasdaq.

The company, which plans acquisitions as it expands into software services outsourcing, forecasts earnings to increase as much as 35 percent this year on revenue growth of 40 percent, Zhang said.

--Allen Wan in Shanghai. Editor: Richard Frost, Reinie Booysen

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