November 14, 2005

China's Linux disease

Author: Chen Nan Yang

China has chosen Linux as the future of its software industry. But Novell's SUSE became the number one distribution in China's Linux market this year, and more menaces to native developers, such as the march of the Red Hat, are looming. A good portion of the problem comes from the way domestic Linux companies do business in China.

When the Red Hat entering China market at the end of 2004, an executive of Asian distribution vendor Turbolinux said that Chen Shi, the general manager of Red Hat's Greater China region, still had a long way to go to understand the Chinese Rules before he could make success in China market. The Chinese Rules say that software companies should make success by political powers, personal relationships, and individual benefits.

In China, most of the Linux companies have their own government background. The shareholder of Red Flag Software, the symbol of China's Linux industry, is the Chinese Academy of Science (CAS). The holding company of the Turbolinux has a background of Shanghai government. Sun Wah Linux is supported by Jiangsu province government. They all have their own orbits that outsiders have no chance to come into. They don't concern themselves with competing in the Linux market, but instead devote themselves to the Chinese Rules and wait for feeding by the government. At the same time, private companies without government background are staved to death, no matter how creative they are or how hard they try.

The Chinese Rules are not an amulet for the home-grown companies. "Microsoft is more familiar with the Chinese Rules than many native companies," said Mr. Chen, a local software dealer, in December 2004, after Microsoft won a government procurement project in Sichuan Province. "Sichuang is its territory. The public bidding is only a show."

Foreign software companies start by localizing their business in China, and have more strength and money to establish a new and deeper background. Microsoft successfully got it, Novell got it, and soon so will Red Hat. Eventually any idle home-grown company's orbit will be nibbled away if they don't wake up from the Chinese Rules. Novell's victory is only the beginning of their nightmare.

But Chinese Linux companies seem have no intention of waking up. They appealed to the government to protect them. China enacted the Software Government Procurement Regulation (SGPR) two years ago, which excluded foreign companies from China's government software market. But in a trade talk with the United States in July this year, China laid aside the SGPR in exchange for benefits for other more important industries such as textile and color television. Chinese companies found that they would have to continue to share the market with foreign companies.

Another alternative native companies sought was merger. In August, several large Chinese Linux companies sought a merger so that they could strengthen themselves to counteract the offensive by foreign companies. But the negotiations soon broke down thanks to the different objectives of the government departments behind the companies.

Even if they could successfully come to a merger agreement, and even if the SGPR were to be published finally, the established practice of competition through the Chinese Rules would do nothing good for China's Linux industry.

If a Linux marketplace is to succeed in China, the government should get out of the background of Linux companies, eliminating the manipulation by the Chinese Rules and opening the market to all Linux companies, especially to those creative companies that have no background at all. If this happened, the government could give home-grown companies a protective but fair market proportion at the first phase of Linux development. Otherwise, China will waste all their investment spent on Linux in the past years, and worse, it will lose its future in the software industry.

"I am perplexed for the future of the domestic Linux industry," an executive of a home-grown Linux company told me in a recent interview. That's a real portrait of the state of China's Linux industry.

China supports the software industry by government procurement and other indirect subsidies, which may be important to an immature Linux market. Today, however, such an effort is a disease to the industry.

The author is a Chinese freelance journalist and formerly an IT director in a local government's Investment and Development Bureau.

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