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China augments IT services spending

According to a study, China's increased spending on IT services makes it second to India as the fastest-growing consumer.

A study has shown that China is set to narrow the gap with India to become the world?s second-fastest growing consumer of IT services.

According to research firm Gartner Dataquest, China?s IT services market, measured by revenue, is expected to total $4.9 billion this year, an 18.1 percent hike from 2002.

This growth is likely to continue at a compound annual growth rate (CAGR) of 19.6 percent, doubling the value of the country?s technology services market to $8.9 billion by 2006.

The growth rate is second only to India, which is envisioned to see a CAGR of 23.2 percent over the next three years, said Jacqueline Heng, senior forecasting analyst for Gartner Asia-Pacific.

Consulting services in particular are expected to see the greatest demand, as Chinese companies become increasingly competitive in the face of an open market.

However, the Gartner representative said that outsourcing services would not share the same rosy outlook.

"Organizations in China need to automate their manual processes before they can look at outsourcing--this segment is at its infancy stage in China," said Heng. She said that outsourcing services are a new idea yet to gain widespread acceptance among most Chinese companies, which are managed along traditional lines.

Besides market immaturity, Gartner also sees stumbling blocks such as China?s bank debts, the absence of a sizable middle-class segment and the slow decentralization of the rural governing system, among others.

Education is another challenge facing vendors, as Chinese companies are unsure of the value of IT services, Heng added.

CNETAsia's Winston Chai reported from Singapore.